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Stock Market Performance And The Term Structure Of Credit Spreads
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Book Synopsis Stock Market Performance and the Term Structure of Credit Spreads by : Andriy Demchuk
Download or read book Stock Market Performance and the Term Structure of Credit Spreads written by Andriy Demchuk and published by . This book was released on 2004 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: We build a structural two-factor model of default where the stock market index is one of the stochastic factors. We allow the firm to adjust its leverage ratio in response to changes the business climate, for which the past performance of the stock market index acts as a proxy. We assume that the firm's log-leverage ratio follows a mean-reverting process and that the past performance of the stock index negatively affects the firm's target leverage ratio. Our model shows that the past performance of the stock index returns and the correlation between the firm's assets and index returns have a significant impact on credit spreads. Hence, our model can explain why credit spreads may be different within the same credit-rating groups and why spreads are lower during economic expansions and higher during recessions. We also show that our model may explain actual yield spreads better than other well known structural credit risk models.
Book Synopsis The Term Structure of Credit Spreads and the Cross-Section of Stock Returns by : Bing Han
Download or read book The Term Structure of Credit Spreads and the Cross-Section of Stock Returns written by Bing Han and published by . This book was released on 2016 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore the link between credit and equity markets by considering the informational content of the term structure of credit spreads. A shallower credit term structure predicts decreases in default risk, increases in future profitability, as well as favorable earnings surprises. Further, the slope of the credit term structure negatively predicts future stock returns. While systematic slope risk is also priced, information diffusion from the credit market to equities, particularly in less visible stocks, plays an additional role in accounting for return predictability from credit slopes: Such predictability is less evident in stocks with high institutional ownership, analyst coverage, and liquidity, and vice versa.
Book Synopsis The Shape of the Term Structure of Credit Spreads by : Mascia Bedendo
Download or read book The Shape of the Term Structure of Credit Spreads written by Mascia Bedendo and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this empirical paper we investigate the role of interest rate, market and idiosyncratic equity variables in explaining the entire shape of the term structure of credit spreads. Recent empirical literature has highlighted the importance of these components as determinants of the credit spread levels. By analyzing portfolios of straight bonds for both the industrial and financial sectors across investment grade credit ratings, we find that these factors impact credit spread levels at various maturities in a significantly different way. Therefore we conclude that these variables represent important determinants not only of the level, but also of the slope and curvature of credit spread term structures. A closer inspection of the credit spread slope also reveals that it contains important information about future credit spreads, and provides useful insights into the theoretical predictions of the Merton (1974) model.
Book Synopsis The Term Structure of Credit Spreads and Credit Default Swaps - An Empirical Investigation by : Stefan Trück
Download or read book The Term Structure of Credit Spreads and Credit Default Swaps - An Empirical Investigation written by Stefan Trück and published by . This book was released on 2014 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the term structure of credit spreads and credit default swaps for different rating categories. It is well-known quite that for issuers with lower credit quality higher spreads can be observed in the market and vice versa. However, empirical results on spreads for bonds with the same rating but different maturities are rather controversial. We provide empirical results on the term structure of credit spreads based on a large sample of Eurobonds and domestic bonds from EWU-countries. Further we investigate maturity effects on credit default swaps and compare the results to those of corporate bonds. We find that for both instruments a positive relationship between maturity and spreads could be observed for investment grade debt. For speculative grade debt the results are rather ambiguous. We also find that spreads for the same rating class and same maturity exhibit very high variation.
Book Synopsis The Term Structure of Credit Spreads in Project Finance by : Marco Sorge
Download or read book The Term Structure of Credit Spreads in Project Finance written by Marco Sorge and published by . This book was released on 2004 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Macro Factors in the Term Structure of Credit Spreads by : Jeffery D. Amato
Download or read book Macro Factors in the Term Structure of Credit Spreads written by Jeffery D. Amato and published by . This book was released on 2006 with total page 72 pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate arbitrage-free term structure models of US Treasury yields and spreads on BBB and B rated corporate bonds in a doubly-stochastic intensity-based framework. A novel feature of our analysis is the inclusion of macroeconomic variables -- indicators of real activity, inflation and financial conditions -- as well as latent factors, as drivers of term structure dynamics. Our results point to three key roles played by macro factors in the term structure of spreads: they have a significant impact on the level, and particularly the slope, of the curves; they are largely responsible for variation in the prices of systematic risk; and speculative grade spreads exhibit greater sensitivity to macro shocks than high grade spreads. In addition to estimating risk-neutral default intensities, we provide estimates of physical default intensities using data on Moody's KMV EDFs as a forward--looking proxy for default risk. We find that the real and financial activity indicators, along with filtered estimates of the latent factors from our term structure model, explain a large portion of the variation in EDFs across time. Furthermore, measures of the price of default event risk implied by estimates of physical and risk-neutral intensities indicate that compensation for default event risk is countercyclical, varies widely across the cycle, and is higher on average and more variable for higher-rated bonds.
Book Synopsis The Term Structure of Credit Spreads and the Economic Activity by :
Download or read book The Term Structure of Credit Spreads and the Economic Activity written by and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We estimate arbitrage-free term structure models of US Treasury yields and spreads on BBB and B-rated corporate bonds in a doubly- stochastic intensity-based framework. A novel feature of our analysis is the inclusion of macroeconomic variables - indicators of real activity, inflation and financial conditions - as well as latent factors, as drivers of term structure dynamics. Our results point to three key roles played by macro factors in the term structure of spreads: they have a significant impact on the level, and particularly the slope, of the curves; they are largely responsible for variation in the prices of systematic risk; and speculative grade spreads exhibit greater sensitivity to macro shocks than high grade spreads. In addition to estimating risk-neutral default intensities, we provide estimates of physical default intensities using data on Moody's KMV EDFs"!as a forward-looking proxy for default risk. We find that the real and financial activity indicators, along with filtered estimates of the latent factors from our term structure model, explain a large portion of the variation in EDFs"!across time. Furthermore, measures of the price of default event risk implied by estimates of physical and risk-neutral intensities indicate that compensation for default event risk is countercyclical, varies widely across the cycle, and is higher on average and more variable for higher- rated bonds.
Book Synopsis Stock Market Fluctuations and the Term Structure by : Chunsheng Zhou
Download or read book Stock Market Fluctuations and the Term Structure written by Chunsheng Zhou and published by . This book was released on 1996 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Asymmetric Information, Dynamic Debt Issuance, and the Term Structure of Credit Spreads by : Luca Benzoni
Download or read book Asymmetric Information, Dynamic Debt Issuance, and the Term Structure of Credit Spreads written by Luca Benzoni and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a tractable model of a firm's dynamic debt and equity issuance policies in the presence of asymmetric information. Because "investment-grade" firms can access debt markets, managers who observe a bad private signal can both conceal this information and shield shareholders from infusing capital into the firm by issuing new debt to service existing debt, thus avoiding default. The implication is that the "asymmetric information channel" can generate jumps to default (from the creditors' perspective) only for those "high-yield" firms that have exhausted their ability to borrow. Thus, our model deepens the "credit spread puzzle" for investment-grade firms.
Book Synopsis Revisiting the Slope of the Credit Spread Curve by : David Lando
Download or read book Revisiting the Slope of the Credit Spread Curve written by David Lando and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The term structure of interest rates contains information about the market's expectations of the direction of future interest rates. Similarly, the term structure of credit spreads contains information about the market's perception of future credit spreads. The term structure of credit spreads is closely linked with conditional default probabilities and this link suggests a downward sloping term structure of credit spreads for high risk issuers, whose default probability conditional on survival is likely to decrease. This paper shows that for sufficiently low credit quality, as defined by the level of credit spreads, this holds true most of the time when spreads are taken from credit default swap (CDS) markets. We also discuss why CDS markets give a better way of analyzing this problem than bond price data.
Book Synopsis A No-Arbitrage Analysis of Economic Determinants of the Credit Spread Term Structure by : Liuren Wu
Download or read book A No-Arbitrage Analysis of Economic Determinants of the Credit Spread Term Structure written by Liuren Wu and published by . This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents an internally consistent analysis of the economic determinants of the term structure of credit spreads across different credit rating classes and industry sectors. Our analysis proceeds in two steps. First, we extract three economic factors from 13 time series that capture three major dimensions of the economy: inflation pressure, real output growth, and financial market volatility. In the second step, we build a no-arbitrage model that links the dynamics and market prices of these fundamental sources of economic risks to the term structure of Treasury yields and corporate bond credit spreads. Via model estimation, we infer the market pricing of these economic factors and their impacts on the whole term structure of Treasury yields and credit spreads.Estimation shows that positive inflation shocks increase both Treasury yields and credit spreads across all maturities and credit rating classes. Positive shocks on the real output growth also increase the Treasury yields, more so at short maturities than at long maturities. The impacts on the credit spreads are positive for high credit rating classes, but become negative and increasingly so at lower credit rating classes. The financial market volatility factor has small positive impacts on the Treasury yield curve, but the impacts are strongly positive on the credit spreads, and increasingly so at longer maturities and lower credit rating classes.Finally, when we divide each rating class into two industry sectors: financial and corporate, we find that with in each rating class, the credit spreads in the financial sector are on average wider and more volatile than the spreads in the corporate sector. Estimation further shows that the term structure of credit spreads in the financial sector is more responsive to shocks in the economic factors.
Book Synopsis The Term Structure of Credit Spreads by : Ombretta Terazzan
Download or read book The Term Structure of Credit Spreads written by Ombretta Terazzan and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Credit Spreads on Sterling Corporate Bonds and the Term Structure of UK Interest Rates by : Jeremy Leake
Download or read book Credit Spreads on Sterling Corporate Bonds and the Term Structure of UK Interest Rates written by Jeremy Leake and published by . This book was released on 2005 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the relationship between credit spreads on sterling corporate bonds and the term structure of UK interest rates. In particular, it examines whether credit spreads are a reliable indicator of corporate bond default risk. Using daily price quotes from 1990 to 1998, the paper finds a small negative relationship between credit spreads on sterling investment-grade corporate bonds and the level and slope of the term structure of UK interest rates. The results are weaker than those found by Longstaff and Schwartz (1995) and Duffee (1996 and 1998) who both examine the relationship between US corporate bond credit spreads and the term structure of US interest rates. The weak relationship found suggests that credit spreads on sterling investment-grade corporate bonds have been driven by factors other than default risk. If so, we should be cautious in interpreting such credit spreads as measures of bond default risk. This result is important to both those in the field of financial stability interested in leading indicators of corporate defaults, and to monetary policy makers interested in the impact of interest rate changes on corporate bond default risk. Similar work should be repeated for sterling sub investment-grade corporate bonds once a sufficiently large data set can be assembled.
Book Synopsis The Shape of the Term Structure of Credit Spreads by :
Download or read book The Shape of the Term Structure of Credit Spreads written by and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Commonalities in the Term Structure of Credit Spreads by : Abhimanyu Chatterjee
Download or read book Commonalities in the Term Structure of Credit Spreads written by Abhimanyu Chatterjee and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis A No-arbitrage Analysis of Economic Determinants of the Credit Spread Term Structure by : Liuren Wu
Download or read book A No-arbitrage Analysis of Economic Determinants of the Credit Spread Term Structure written by Liuren Wu and published by . This book was released on 2005 with total page 80 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Estimating the Term Structure of Credit Spreads by : Antje Berndt
Download or read book Estimating the Term Structure of Credit Spreads written by Antje Berndt and published by . This book was released on 2003 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
