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The Determinants of Credit Spreads Changes

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Author Info
Pierre Collin-Dufresne
Robert S. Goldstein
Spencer J. Martin
Abstract

Using straight industrial bonds with quoted prices, we investigate the determinants of credit spread changes. The variables that should in theory determine credit spread changes in fact have limited explanatory power. Further, the residuals from this first-pass regression are highly cross-correlated, and principal components analysis strongly suggests they are driven by a single common factor. We investigate several macro-economic and financial variables as candidate proxies for this factor. We cannot, however, find any set of variables which explain this common systematic factor. Our results suggest the corporate bond market is a segmented market driven by corporate bond specific supply/demand shocks.

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Paper provided by Carnegie Mellon University, Tepper School of Business in its series GSIA Working Papers with number 2000-E13.

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Date of creation: Oct 1999
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Handle: RePEc:cmu:gsiawp:364

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