Quotation Kappel, Wolfgang. Forthcoming. Is there a Independent Common Factor in the Corporate Bond Market.


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Abstract

Using dealer s quotes on straight corporate bonds we investigate changes in the credit spread. The general idea is to explain as much of the credit spread shocks as possible and then to analyze the remaining variation. First we start with a first regression setup which only considers variables that are motivated by structural models. Then a large set systematic and common factors as well as firm specific accounting data are added and discussed. Given the different regression models, we find that the residuals turn out to be cross correlated and a principal component analysis implies that they are mostly driven by a single common factor. Nonetheless, when comparing our results to the ones from Collin-Dufresne et al. (2001) (CDGM) we find that this single common factor lost substantially in explanatory power, whereas certain firm specific variables as well as the VIX gained during the last 10 years.

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Publication's profile

Affiliation WU
Type of publication Working/discussion paper, preprint
Language English
Title Is there a Independent Common Factor in the Corporate Bond Market
Year 2009

Associations

People
Kappel, Wolfgang (Former researcher)
Organization
Institute for Finance, Banking and Insurance IN (Details)
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