Corporate Bond Default Risk: A 150-Year Perspective
AbstractWe study corporate bond default rates using an extensive new data set spanning the 1866–2008 period. We find that the corporate bond market has repeatedly suffered clustered default events much worse than those experienced during the Great Depression. For example, during the railroad crisis of 1873–1875, total defaults amounted to 36 percent of the par value of the entire corporate bond market. We examine whether corporate default rates are best forecast by structural, reduced-form, or macroeconomic credit models and find that variables suggested by structural models outperform the others. Default events are only weakly correlated with business downturns. We find that over the long term, credit spreads are roughly twice as large as default losses, resulting in an average credit risk premium of about 80 basis points. We also find that credit spreads do not adjust in response to realized default rates.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15848.
Date of creation: Mar 2010
Date of revision:
Publication status: published as Corporate Bond Default Risk: A 150-Year Perspective (with K. Giesecke, I. Strebulaev, and S. Schaefer), Journal of Financial Economics 102, 233-250, 2011.
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
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Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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- Kay Giesecke & Francis A. Longstaff & Stephen Schaefer & Ilya Strebulaev, 2012. "Macroeconomic Effects of Corporate Default Crises: A Long-Term Perspective," NBER Working Papers 17854, National Bureau of Economic Research, Inc.
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- Georges Dionne & Geneviève Gauthier & Khemais Hammami & Mathieu Maurice & Jean-Guy Simonato, 2010. "A Reduced Form Model of Default Spreads with Markov-Switching Macroeconomic Factors," Cahiers de recherche 1042, CIRPEE.
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