Arbeitspapier
Market conditions, default risk and credit spreads
This study empirically examine the impact of market conditions on credit spreads as motivated by recently developed structural credit risk models. Using credit default swap (CDS) spreads, we find that, in the time series, average credit spreads are decreasing in GDP growth rate, but increasing in GDP growth volatility. We document that credit spreads are lower when investor sentiment is high and when the systematic jump risk is low. In the cross section, we confirm that firm-level cash flow volatility raises credit spreads. More importantly, we demonstrate that the impact of market conditions on credit spreads is substantially affected by firm heterogeneity. During economic expansions, ceteris paribus, firms with high cash flow betas have lower credit spreads than those with low cash flow betas. This relation disappears during economic recessions, consistent with theoretical predictions.
- Sprache
-
Englisch
- Erschienen in
-
Series: Discussion Paper Series 2 ; No. 2008,08
- Klassifikation
-
Wirtschaft
Contingent Pricing; Futures Pricing; option pricing
Asset Pricing; Trading Volume; Bond Interest Rates
Financial Markets and the Macroeconomy
Interest Rates: Determination, Term Structure, and Effects
- Thema
-
Credit Risk
Credit Default Swaps
Credit Spreads
Market Conditions
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Tang, Dragon Yongjun
Yan, Hong
- Ereignis
-
Veröffentlichung
- (wer)
-
Deutsche Bundesbank
- (wo)
-
Frankfurt a. M.
- (wann)
-
2008
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Tang, Dragon Yongjun
- Yan, Hong
- Deutsche Bundesbank
Entstanden
- 2008
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