Determinants of U.S. corporate credit spreads.

Kume, Ortenca

Abstract

This thesis deals with various issues regarding determinants of US corporate credit spreads. These spreads are estimated as the difference between yields to maturity for corporate bonds and default-free instruments (Treasury bonds) of the same maturity. Corporate credit spreads are considered as measures of default risk. However, the premium required by investors for holding risky rather than risk-free bonds will incorporate a compensation not only for the default risk but also for other factors related to corporate bonds such as market liquidity or tax differential between corporate and Treasury bonds. In this study we firstly examine the relationship between bond ratings and credit spreads given that bond rating changes are expected to carry some informational value for debt investors. The findings indicate that bond ratings generally carry some informational value for corporate bond investors. The Granger causal relationship is more evident for negative watch lists and during periods of uncertainty in financial markets. In line with previous studies, our results suggest that changes in credit spreads are significantly related to interest rate levels, systematic risk factors (Fama and French) factors and equity returns.

Citation

KUME, O. 2012. Determinants of U.S. corporate credit spreads. Robert Gordon University, PhD thesis.

• Thesis Type: Thesis
• Deposit Date: Jul 18, 2012
• Publicly Available Date: Jul 18, 2012
• Keywords: Credit spreads; Default risk; Bond pricing; Panel Granger causality; Panel data; ARCH/GARCH analysis
• Public URL: http://hdl.handle.net/10059/735
• Award Date: Jan 31, 2012