Two Essays on Corporate Bonds Credit Spreads
Author | : Siamak (Hossein) Javadi Asl |
Publisher | : |
Total Pages | : 173 |
Release | : 2014 |
ISBN-10 | : OCLC:932721965 |
ISBN-13 | : |
Rating | : 4/5 (65 Downloads) |
Download or read book Two Essays on Corporate Bonds Credit Spreads written by Siamak (Hossein) Javadi Asl and published by . This book was released on 2014 with total page 173 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract Essay1: This paper examines joint default risk and its bond pricing implications. Constructing a measure of default correlation from CDS data, we show that default correlation is priced in bond market. Default correlation is more pronounced during periods of financial distress and for speculative issues. Also, consistent with theory, we establish a link between default correlation, secondary bond market liquidity, and the overall economic condition. Deterioration in secondary bond market liquidity raises the default boundary across the board and triggers default correlation. Our results provide a direct evidence for an intricate interaction between default risk premium and liquidity risk premium and have significant risk management and policy implications.