Investigating the Determinants of Corporate Bond Credit Spreads in the Euro Area PDF Download

Author: Simone Letta
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Arne Wilkes
Publisher: Peter Lang Gmbh, Internationaler Verlag Der Wissenschaften
ISBN: 9783631606049
Category : Bond market
Languages : en
Pages : 0

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Credit spreads express how markets evaluate the riskiness of corporate bonds compared to risk-free investments. Since credit spreads have been highly volatile especially during the last decade it is important for academics and practitioners alike to understand the dynamic interdependencies between credit spreads and their determinants. Based on a sample of European corporate bonds and different macroeconomic variables the author analyzes the determinants of credit spreads during the period of 1999 to 2009. With a macro-finance term structure model he shows that the European corporate bond market is largely integrated with some remaining segmentation. Furthermore, panel regressions yield that declining liquidity leads to a significant widening of credit spreads especially during the recent financial crisis. Finally, he demonstrates based on a cointegration analysis that a long-term relationship exists between credit spreads and their determinants and that credit spreads were significantly overpriced after the collapse of Lehman Brothers but have almost returned to equilibrium towards the end of 2009.

Author: Klaus-Michael Menz
Publisher:
ISBN:
Category :
Languages : en
Pages : 26

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While much is known about the US corporate bond market, relatively little research focuses on the Euro counterpart. In this paper, the evaluation of Euro-denominated industrial bonds is investigated by using a panel econometric approach. We analyze several evaluation determinants that theoretically should affect the risk premia of corporate bonds and show in a sample of nearly 500 investment grade rated issues observed over a 29 months time frame that idiosyncratic as well as systematic risk factors generate empirically significant explanation contributions. The residuals from the panel regression of credit spreads on these determinants contain both stationary and random walk elements, which may be exploited to optimize the investment results in the active management of bond portfolios. Specifically, the analysis reveals that lagged changes of the residuals have significant empirical influence on the changes of credit spreads.

Author: Bernard Killelea
Publisher:
ISBN:
Category : Bond market
Languages : en
Pages : 0

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Author: Pierre Collin-Dufresne
Publisher:
ISBN:
Category :
Languages : en
Pages : 33

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Using straight industrial bonds with quoted prices, we investigate the determinants of credit spread changes. We find the variables that should in theory determine credit spread changes in fact have limited explanatory power. Further, the residuals from this first-pass regression are highly cross-correlated, and principal components analysis strongly suggests they are driven by a single common factor. We investigate several macro-economic and financial variables as candidate proxies for this factor. We cannot, however, find any set of variables which explain this common systematic factor. Our results suggest the corporate bond market is a segmented market driven by corporate bond specific supply/demand shocks.

Author:
Publisher:
ISBN: 9789289921602
Category :
Languages : en
Pages : 38

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This paper computes time-varying indicators of the relative importance of different credit spread determinants, including rating, sector and country attribution as well as the coupon rate, maturity and liquidity on the basis of the comprehensive dataset of individual bonds. Additionally, it decomposes variances of rating-specific (country- and sector-specific) spread indices into the impacts of explanatory variables. Both cross-sectional and time series analyses confirm that the rating effect was the major driver of corporate bond spreads during the pre-crisis period, while the recent financial crisis was characterised by increased cross-country and cross-sector heterogeneity. The sector effects in corporate spreads together with the rating effects for high-rated and low-rated bonds are found to be more closely linked to default rates and stock indices, whereas the common effect also to be linked to business cycle conditions. The dataset also allows documenting a break-up in the existence of country ceilings for corporate bond ratings during the crisis.

Author: Marie-Therese McDonald
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Author: Jean Helwege
Publisher:
ISBN:
Category :
Languages : en
Pages : 43

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Corporate bond spreads are affected by both credit risk and liquidity and it is difficult to disentangle the two factors empirically. In this paper we separate out the credit risk component by examining bonds that are issued by the same firm and that trade on the same day. Our sample of bond pairs provides two yield spreads which, if they differ, vary only because of differences in liquidity. We then investigate the determinants of the differences in yield spreads. We find that standard liquidity measures do a poor job of explaining spreads, and that incorporating the information from other bonds issued by the firm and from bonds of other firms can significantly improve the explanatory power of those liquidity measures. Still, a significant portion of the spread is left unexplained and it is largely driven by a common unknown factor. We conclude that good proxies for the liquidity component of corporate bond spreads remain elusive.

Author: Jan Pieter Krahmen (editor)
Publisher:
ISBN: 0199253161
Category : Business & Economics
Languages : en
Pages : 550

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Written by a team of scholars, predominantly from the Centre for Financial Studies in Frankfurt, this volume provides a descriptive survey of the present state of the German financial system and a new analytical framework to explain its workings.

Author: Darrell Duffie
Publisher: Princeton University Press
ISBN: 1400829208
Category : Business & Economics
Languages : en
Pages : 488

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Book Description
This is a thoroughly updated edition of Dynamic Asset Pricing Theory, the standard text for doctoral students and researchers on the theory of asset pricing and portfolio selection in multiperiod settings under uncertainty. The asset pricing results are based on the three increasingly restrictive assumptions: absence of arbitrage, single-agent optimality, and equilibrium. These results are unified with two key concepts, state prices and martingales. Technicalities are given relatively little emphasis, so as to draw connections between these concepts and to make plain the similarities between discrete and continuous-time models. Readers will be particularly intrigued by this latest edition's most significant new feature: a chapter on corporate securities that offers alternative approaches to the valuation of corporate debt. Also, while much of the continuous-time portion of the theory is based on Brownian motion, this third edition introduces jumps--for example, those associated with Poisson arrivals--in order to accommodate surprise events such as bond defaults. Applications include term-structure models, derivative valuation, and hedging methods. Numerical methods covered include Monte Carlo simulation and finite-difference solutions for partial differential equations. Each chapter provides extensive problem exercises and notes to the literature. A system of appendixes reviews the necessary mathematical concepts. And references have been updated throughout. With this new edition, Dynamic Asset Pricing Theory remains at the head of the field.