Interpreting Recent Changes in the Credit Spreads of Japanese Banks
AbstractThis paper examines the recent period of relatively low credit spreads in Japan, with particular emphasis on the marketfs assessments of the credit risks of large Japanese banks implicit in the prices of credit derivatives. We extract the market-price implied likelihood of a credit event in the future, and explore the nature of the default risk premiums underlying recent changes in bank bond and credit derivatives prices. We document substantial increases in the gjump-at- defaulth default risk premiums for the large Japanese banks examined during the early part of 2006. These patterns in risk premiums are related to the recent patterns in market indicators of global event risk, local equity market volatility, and an estimate of the duration of the Bank of Japanfs zero interest rate policy.
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Bibliographic InfoArticle provided by Institute for Monetary and Economic Studies, Bank of Japan in its journal Monetary and Economic Studies.
Volume (Year): 24 (2006)
Issue (Month): S1 (December)
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Default risk premium; Credit default swap; Japanese banks; Zero interest rate policy; Event risk;
Find related papers by JEL classification:
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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- Naohiko Baba & Motoharu Nakashima & Yosuke Shigemi & Kazuo Ueda, 2006.
"The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 2(1), March.
- Naohiko Baba & Motoharu Nakashima & Yosuke Shigemi & Kazuo Ueda, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," CIRJE F-Series CIRJE-F-339, CIRJE, Faculty of Economics, University of Tokyo.
- Baba, Naohiko & Nakashima, Motoharu & Shigemi, Yosuke & Ueda, Kazuo, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," MPRA Paper 816, University Library of Munich, Germany.
- Naohiko Baba & Motoharu Nakashima & Yousuke Shigemi & Kazuo Ueda, 2005. "The Bank of Japan's Monetary Policy and Bank Risk Premiums in the Money Market," CIRJE F-Series CIRJE-F-374, CIRJE, Faculty of Economics, University of Tokyo.
- Groba, Jonatan & Lafuente, Juan A. & Serrano, Pedro, 2013. "The impact of distressed economies on the EU sovereign market," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2520-2532.
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