The determinants of corporate bond yields
نویسندگان
چکیده
Previous studies have found that common factors explain a high proportion of corporate bond yields. In this paper, we test whether there is a systematic risk premium beyond that implied by a risk-neutral term structure model. We propose a reduced-form term structure model that incorporates both default and tax effects. After controlling the effects of personal taxes and default risk, empirical tests show that at least two of the Fama–French factors are important for corporate bond yields. Our results suggest that term structure models should incorporate aggregate common risk factors in order to better explain the dynamics of corporate bond yields. © 2007 The Board of Trustees of the University of Illinois. Published by Elsevier B.V. All rights reserved. JEL classification: G12
منابع مشابه
Determinants of government bond spreads in the Euro area – in good times as in bad
Despite the single currency, yields on government bonds in the Euro Area deviate substantially from German bond yields. These bond spreads are usually attributed to differing default and liquidity risks. The empirical literature documents that evaluation of these risks is subject to time variation in global factors approximated by US corporate bond spreads or short term interest rates. Within t...
متن کاملInternal Liquidity Risk in Corporate Bond Credit Spreads
The determinants of a substantial portion of bond credit spreads remain puzzled in literature. Through investigating corporate bond credit spreads from year 2000 to 2005, we find that corporate internal liquidity still significantly impacts on corporate bond credit spreads when controlling other well-known variables stated in literature. Additionally, we also find that there is a systematic int...
متن کاملUnconventional monetary policies and the corporate bond market
The paper uses a reduced-form vector autoregressive framework to study the effects of quantitative easing and operation ‘‘twist’’, as well as a conventional monetary expansion, on corporate bond yields and spreads. We construct ratingand maturity-based weekly bond portfolios using TRACE and simulate monetary policies as shocks to the Treasury yield curve. We find that none of the policies can p...
متن کاملAnalysis of credit spread in Japan’s corporate bond market
This paper analyses the determinants of variation in the yield spread (credit spread) between government bonds and corporate bonds in Japan's bond market after 1997. The authors conduct empirical tests on the relationship between credit spreads and several economic and financial variables. A key finding is that default risk and the overall financial situation in Japan were the most significant ...
متن کاملA No-Arbitrage Analysis of Macroeconomic Determinants of the Credit Spread Term Structure
F a large array of economic and financial data series, this paper identifies three fundamental risk dimensions underlying an economy: inflation, real output growth, and financial market volatility. Furthermore, through a no-arbitrage model, the paper links the dynamics and market pricing of the three risk dimensions to the term structure of U.S. Treasury yields and corporate bond credit spreads...
متن کامل