This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Liquidity and Credit Risk

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
JAN ERICSSON
OLIVIER RENAULT

Additional information is available for the following registered author(s):

Abstract

We develop a structural bond valuation model to simultaneously capture liquidity and credit risk. Our model implies that renegotiation in financial distress is influenced by the illiquidity of the market for distressed debt. As default becomes more likely, the components of bond yield spreads attributable to illiquidity increase. When we consider finite maturity debt, we find decreasing and convex term structures of liquidity spreads. Using bond price data spanning 15 years, we find evidence of a positive correlation between the illiquidity and default components of yield spreads as well as support for downward-sloping term structures of liquidity spreads. Copyright 2006 by The American Finance Association.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help file. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6261.2006.01056.x
File Format: text/html
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 61 (2006)
Issue (Month): 5 (October)
Pages: 2219-2250
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:bla:jfinan:v:61:y:2006:i:5:p:2219-2250

Contact details of provider:
Web page: http://www.afajof.org/
More information through EDIRC

Order Information:
Web: http://www.afajof.org/membership/join.asp

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Other versions of this item:

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
  1. Hayette Gatfaoui, 2003. "How Does Systematic Risk Impact US Credit Spreads? A Copula Study," Risk and Insurance 0308002, EconWPA. [Downloadable!]
  2. Gady Jacoby & Chuan Liao & Jonathan A. Batten, 2007. "A Pure Test for the Elasticity of Yield Spreads," The Institute for International Integration Studies Discussion Paper Series iiisdp195, IIIS. [Downloadable!]
  3. Juan Ignacio Pena & Santiago Forte, 2006. "CREDIT SPREADS: THEORY AND EVIDENCE ABOUT THE INFORMATION CONTENT OF STOCKS, BONDS AND CDSs," Business Economics Working Papers wb063310, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  4. Miguel A. Martínez & Belén Nieto & Gonzalo Rubio & Mikel Tapia, 2002. "Asset Pricing And Systematic Liquidity Risk: An Empirical Investigation Of The Spanish Stock Market," Business Economics Working Papers wb026022, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  5. J.L. Prigent & O. Renault & O.Scaillet, 2000. "An Empirical Estimation in Credit Spread Indices," THEMA Working Papers 2000-51, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise. [Downloadable!]
  6. Gonzalo Rubio & Miguel Angel A. Martinez & Belén Nieto, 2003. "Asset pricing and systematic liquidity risk," DFAEII Working Papers 200205, University of the Basque Country - Department of Foundations of Economic Analysis II. [Downloadable!]
  7. Carlo Favero & Marco Pagano & Ernst-Ludwig von Thadden, 2007. "How Does Liquidity Affect Government Bond Yields?," CSEF Working Papers 181, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
    Other versions:
  8. Hayette Gatfaoui, 2004. "Idiosyncratic Risk, Systematic Risk and Stochastic Volatility: An Implementation of Merton's Credit Risk Valuation," Research Paper Series 123, Quantitative Finance Research Centre, University of Technology, Sydney.
  9. Marco Realdon, . "Corporate Bond Valuation with Both Expected and Unexpected Default," Discussion Papers 03/21, Department of Economics, University of York. [Downloadable!]
  10. Andreas Stephan & Oleksandr Talavera & Andriy Tsapin, 2008. "Corporate Debt Maturity Choice in Transition Financial Markets," Discussion Papers of DIW Berlin 784, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  11. Reneby, Joel & Ericsson, Jan, 2001. "The Valuation of Corporate Liabilities: Theory and Tests," Working Paper Series in Economics and Finance 445, Stockholm School of Economics, revised 19 Dec 2002. [Downloadable!]
  12. Gann, Philipp & Laut, Amelie, 2008. "Einflussfaktoren auf den Credit Spread von Unternehmensanleihen," Discussion Papers in Business Administration 4231, University of Munich, Munich School of Management. [Downloadable!]
  13. Ericsson, Jan & Reneby, Joel, 2003. "Valuing Corporate Liabilities," SIFR Research Report Series 15, Swedish Institute for Financial Research. [Downloadable!]
  14. Hayette Gatfaoui, 2003. "Risque de Défaut et Risque de Liquidité : Une Etude de Deux Composantes du Spread de Crédit," Risk and Insurance 0308005, EconWPA. [Downloadable!]
  15. Alessandro Beber & Michael W. Brandt & Kenneth A. Kavajecz, 2006. "Flight-to-Quality or Flight-to-Liquidity? Evidence From the Euro-Area Bond Market," NBER Working Papers 12376, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Statistics
Access and download statistics

Did you know? You too can volunteer for RePEc, for example by providing information about publications in your institution.

This page was last updated on 2008-8-28.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.