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Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market

Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Finance Wiley

Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market

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References (41)

Publisher
Wiley
Copyright
© American Finance Association
ISSN
0022-1082
eISSN
1540-6261
DOI
10.1111/j.1540-6261.2005.00797.x
Publisher site
See Article on Publisher Site

Abstract

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.

Journal

The Journal of FinanceWiley

Published: Oct 1, 2005

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