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The Determinants of Credit Spreads Changes

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  • Pierre Collin-Dufresne
  • Robert S. Goldstein
  • Spencer J. Martin
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    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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    Bibliographic Info

    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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    Postal: Tepper School of Business, Carnegie Mellon University, 5000 Forbes Avenue, Pittsburgh, PA 15213-3890
    Web page: http://www.tepper.cmu.edu/

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    Web: http://student-3k.tepper.cmu.edu/gsiadoc/GSIA_WP.asp

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    Cited by:
    1. Christiansen, Charlotte, 2002. "Credit spreads and the term structure of interest rates," International Review of Financial Analysis, Elsevier, vol. 11(3), pages 279-295.
    2. Delianedis, Gordon & Geske, Robert, 2001. "The Components of Corporate Credit Spreads: Default, Recovery, Tax, Jumps, Liquidity, and Market Factors," University of California at Los Angeles, Anderson Graduate School of Management qt32x284q3, Anderson Graduate School of Management, UCLA.

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