Work

What Drives the Cross‐Section of Credit Spreads?: A Variance Decomposition Approach

Year: 2017

Type: article

Abstract: ABSTRACT I decompose the variation of credit spreads for corporate bonds into changing expected returns and changing expectation of credit losses. Using a log‐linearized pricing identity and a vector autoregression applied to microlevel data from 1973 to 2011, I find that expected returns contribute to the cross‐sectional variance of credit spreads nearly as much as expected credit loss does. However, most of the time‐series variation in credit spreads for the market portfolio corresponds to risk premiums.

Source: The Journal of Finance

DOI: 10.1111/jofi.12524

Author: YOSHIO NOZAWA

Institutions: Hong Kong University of Science and Technology, Federal Reserve Board of Governors, University of Chicago, Federal Reserve Bank of Chicago

Language: English

Topic: Credit Risk and Financial Regulations

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: bronze

OpenAlex ID: W227725060

FWCI: 9.938

Cites: 69

Cited by: 80

Related to: 10