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Corporate Credit Risk Premia

Author

Listed:
  • Douglas, Rohan

    (Quantifi, Inc)

  • Berndt, Antje

    (Australian National University)

  • Duffie, Darrell

    (Stanford University)

  • Ferguson, Mark

Abstract

We measure credit risk premia, meaning the price for bearing corporate default risk in excess of expected default losses, using Markit CDS and Moody's Analytics EDF data. We find dramatic variation over time in credit risk premia, with peaks in 2002, during the global financial crisis of 2008-09, and in the second half of 2011. These risk premia comove with economic indicators, even after controlling for variation in expected default losses, with higher premia per unit of expected loss during times of market-wide distress. Countercyclical variation of premia-to-expected-loss ratios is more pronounced for investment-grade issuers than for high-yield issuers.

Suggested Citation

  • Douglas, Rohan & Berndt, Antje & Duffie, Darrell & Ferguson, Mark, 2017. "Corporate Credit Risk Premia," Research Papers repec:ecl:stabus:3617, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:repec:ecl:stabus:3617
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    File URL: https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/445356
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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