Work

Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market

Year: 2004

Type: article

Abstract: ABSTRACT We use the information in credit default swaps to obtain direct measures of the size of the default and nondefault components in corporate spreads. We find that the majority of the corporate spread is due to default risk. This result holds for all rating categories and is robust to the definition of the riskless curve. We also find that the nondefault component is time varying and strongly related to measures of bond‐specific illiquidity as well as to macroeconomic measures of bond market liquidity.

Source: The Journal of Finance

DOI: 10.3386/w10418

Authors: FRANCIS A. LONGSTAFF, SANJAY MITHAL, ERIC NEIS

Institutions: University of California, Riverside, National Bureau of Economic Research, University of California, Los Angeles, Kyoto University, New York University, The University of Texas at Austin, Deutsche Bank (Germany), Deutsche Bank

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W2155797117

FWCI: 73.64

Cites: 70

Cited by: 2,033

Related to: 8