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Author: Yoshio Nozawa Publisher: ISBN: 9781303423284 Category : Languages : en Pages : 100
Book Description
I decompose corporate bond spread into return predictability and credit loss predictability. Using corporate bond returns in the US, I show empirically that 82 percent of the variation of bond spread of the corporate bond market portfolio is associated with return predictability. I explain the variation of bond premium in equilibrium based on factor risk exposures. To this end, I construct level and slope factors in corporate bond returns. I show that these two factors can explain 93 percent of the variation in average excess returns on corporate bonds. To show this result, I describe expected excess returns and risks as functions of characteristics of corporate bonds such as bond spreads and use a parametric characteristic-based asset pricing test. This approach allows one to test the model's ability to explain the variation in average excess returns associated with multiple characteristics. The two factor model does well for all characteristics except equity momentum.
Author: Yoshio Nozawa Publisher: ISBN: 9781303423284 Category : Languages : en Pages : 100
Book Description
I decompose corporate bond spread into return predictability and credit loss predictability. Using corporate bond returns in the US, I show empirically that 82 percent of the variation of bond spread of the corporate bond market portfolio is associated with return predictability. I explain the variation of bond premium in equilibrium based on factor risk exposures. To this end, I construct level and slope factors in corporate bond returns. I show that these two factors can explain 93 percent of the variation in average excess returns on corporate bonds. To show this result, I describe expected excess returns and risks as functions of characteristics of corporate bonds such as bond spreads and use a parametric characteristic-based asset pricing test. This approach allows one to test the model's ability to explain the variation in average excess returns associated with multiple characteristics. The two factor model does well for all characteristics except equity momentum.
Author: Christian Speck Publisher: ISBN: Category : Languages : en Pages : 63
Book Description
This paper investigates the holding period risk premia of U.S. corporate and Treasury bonds. Using excess return regressions, two priced risk factors are derived from yield and macroeconomic data: a priced term risk factor and a priced credit risk factor explain half of the variation in one-year corporate and Treasury excess returns. The information of the term risk factor is not represented by major yield characteristics but is a hidden risk factor whereas the credit risk factor is not hidden. The term risk premium is earned primarily for exposure to inflation and the yield level and the credit risk premium is earned for an exposure to real growth and the credit spread level. The regression results are usefull for the specification of the market prices of risk in affine credit term structure models: The two-factor representation of the risk premium suggests a rank restriction on the market prices of risk and an additional pricing factor to capture the hidden property of term risk.
Author: Redouane Elkamhi Publisher: ISBN: Category : Languages : en Pages : 50
Book Description
We study the link between corporate bond risk premia and equity returns in a large panel of corporate bond transaction data. In contrast to previous work, we find that a significant part of the time variation in bond risk premia can be explained by equity implied bond risk premium estimates. We also document a large time variation in the expected loss component of bond spreads. This component is related to total asset volatility, whereas the risk premium is related to systematic volatility. In addition, we show by means of linear regressions that augmenting the set of variables predicted by typical structural models with equity-implied bond default risk premia significantly increases explanatory power.
Author: Frank De Jong Publisher: ISBN: Category : Languages : en Pages : 47
Book Description
This paper explores the role of liquidity risk in the pricing of corporate bonds. We show that corporate bond returns have signifcant exposures to fluctuations in treasury bond liquidity and equity market liquidity. Further, this liquidity risk is a priced factor for the expected returns on corporate bonds, and the associated liquidity risk premia help to explain the credit spread puzzle. In terms of expected returns, the total estimated liquidity risk premium is around 0.6% per annum for US long-maturity investment grade bonds. For speculative grade bonds, which have higher exposures to the liquidity factors, the liquidity risk premium is around 1.5% per annum. We find very similar evidence for the liquidity risk exposure of corporate bonds for a sample of European corporate bond prices.
Author: Antonio Diaz Publisher: ISBN: Category : Languages : en Pages :
Book Description
This article studies the economic factors behind corporate default risk premia in Europe during the period 2006-2010. We employ information embedded in Credit Default Swap (CDS) contracts to quantify expected excess returns from the underlying bonds in market-wide default circumstances. We disentangle the compensation to investors for unexpected changes in the creditworthiness of the bond issuer from their remuneration for the risk that the bond's price will drop in the event of default. Our results show that the risk premia associated with systematic factors influencing default arrivals represent approximately 40% of total CDS spread (on median). These premia also exhibit a strong source of commonality; a single principal component explains approximately 88% of their joint variability. This factor significantly covaries with aggregate illiquidity and sovereign risk variables. Empirical evidence suggests a public-to-private risk transfer between sovereign credit spread and corporate risk premia. Finally, the compensation in the event of default is approximately 14 basis points of the total CDS spread, and a significant amount of jump-at-default risk may not be diversifiable.
Author: Elizaveta Krylova Publisher: ISBN: Category : Languages : en Pages : 46
Book Description
This paper analyses leading indicator properties of a broad set of credit spreads, compiled on the basis of information from both corporate bonds and bank loans for forecasting of real activity, unemployment, inflation and lending volumes in the euro area and in five major European economies. It also introduces a set of indicators for excess bond premia, adjusting corporate bond spreads for credit risk of the issuer and the term, coupon and liquidity premia. I find that the majority of macroeconomic indicators can be better predicted by the excess bond premia compared to non-adjusted indices; the rating-adjustment and time-varying parameter estimates seem to be particularly important. Although the predictive power of lending spreads is inferior to the predictive power of the excess bond premia, the forecasting performance of models which use the information from both lending and corporate bond spreads is always superior to models using only information from one source of external funding.
Author: F. Hagenstein Publisher: Springer ISBN: 0230523293 Category : Business & Economics Languages : en Pages : 355
Book Description
Investing in Corporate Bonds and Credit Risk is a valuable tool for any corporate bond investor. All the most recent developments and strategies in investment in corporate bonds are analyzed included with qualitative and quantitative approaches. A complete and up-to-date investment process is developed through the book, using many examples taken from banking practice. The growing significance of derivative instruments and credit diversification to bond investors is also analyzed in detail.
Author: Hai Lin Publisher: ISBN: Category : Languages : en Pages : 33
Book Description
Using a comprehensive data set and an array of 27 macroeconomic, stock and bond predictors, we find that corporate bond returns are highly predictable based on an iterated combination model. The large set of predictors outperforms traditional predictors substantially, and predictability generated by the model is both statistically and economically significant. Stock market and macroeconomic variables play an important role in forming expected bond returns. Return forecasts are closely linked to the evolution of real economy. Corporate bond premia have strong predictive power for business cycle and the primary source of this predictive power is from the low-grade bond premium.
Author: Yoshio Nozawa
Author: Yoshio Nozawa
Author: Christian Speck
Author: Redouane Elkamhi
Author: Frank De Jong
Author: Antonio Diaz
Author: Elizaveta Krylova
Author: Jerome S. Fons
Author: Sara Cecchetti
Author: F. Hagenstein
Author: Hai Lin