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

@inproceedings{Nozawa2014WhatDT,
  title={What Drives the Cross-Section of Credit Spreads ? : A Variance Decomposition Approach ∗},
  author={Yoshio Nozawa},
  year={2014}
}
I decompose the cross-sectional variation of the credit spreads for corporate bonds into changing expected returns and changing expectation of credit losses with a modelfree method. Using a log-linearized pricing identity and a vector autoregression applied to micro-level data from 1973 to 2011, I find that the expected credit loss component and the excess return component each explains about half of the variance of the credit spreads. Unlike the market-level findings in Gilchrist and Zakrajšek… CONTINUE READING

Citations

Publications citing this paper.

References

Publications referenced by this paper.
Showing 1-10 of 50 references

Credit Spreads and Business Cycle Fluctuations

  • Gilchrist, Simon, Egon
  • Zakrajšek,
  • 2012

The Same Bond at Different Prices: Identifying Search Frictions and Selling Pressures

  • Feldhütter, Peter
  • Review of Financial Studies
  • 2012

Similar Papers

Loading similar papers…