Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market
Top Cited Papers
Open Access
- 16 September 2005
- journal article
- Published by Wiley in The Journal of Finance
- Vol. 60 (5) , 2213-2253
- https://doi.org/10.1111/j.1540-6261.2005.00797.x
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.Keywords
All Related Versions
This publication has 47 references indexed in Scilit:
- The Flight‐to‐Liquidity Premium in U.S. Treasury Bond PricesThe Journal of Business, 2004
- Structural Models of Corporate Bond Pricing: An Empirical AnalysisThe Review of Financial Studies, 2004
- Measuring Default Risk Premia from Default Swap Rates and EDFsSSRN Electronic Journal, 2004
- Asset Pricing with Liquidity RiskSSRN Electronic Journal, 2003
- Securities lending, shorting, and pricingPublished by Elsevier ,2002
- Pricing Credit Derivatives with Rating TransitionsCFA Magazine, 2002
- Explaining the Rate Spread on Corporate BondsThe Journal of Finance, 2001
- Credit Swap ValuationCFA Magazine, 1999
- Pricing Derivatives on Financial Securities Subject to Credit RiskThe Journal of Finance, 1995
- Liquidity, Taxes, and Short-Term Treasury YieldsJournal of Financial and Quantitative Analysis, 1994