Understanding Changes in Corporate Credit Spreads
Author | : Doron Avramov |
Publisher | : |
Total Pages | : |
Release | : 2007 |
ISBN-10 | : OCLC:1291169805 |
ISBN-13 | : |
Rating | : 4/5 ( Downloads) |
Download or read book Understanding Changes in Corporate Credit Spreads written by Doron Avramov and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: New evidence is reported on the empirical success of structural models in explaining changes in corporate credit risk. A parsimonious set of common factors and company-level fundamentals, inspired by structural models, was found to explain more than 54 percent (67 percent) of the variation in credit-spread changes for medium-grade (low-grade) bonds. No dominant latent factor was present in the unexplained variation. Although this set of factors had lower explanatory power among high-grade bonds, it did capture most of the systematic variation in credit-spread changes in that category. It also subsumed the explanatory power of the Fama and French factors among all grade classes.