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The Determinants of Credit Spread Changes

  • Pierre Collin-Dufresne
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    Using dealer's quotes and transactions prices on straight industrial bonds, we investigate the determinants of credit spread changes. Variables that should in theory determine credit spread changes have rather limited explanatory power. Further, the residuals from this regression are highly cross-correlated, and principal components analysis implies they are mostly driven by a single common factor. Although we consider several macroeconomic and financial variables as candidate proxies, we cannot explain this common systematic component. Our results suggest that monthly credit spread changes are principally driven by local supply/demand shocks that are independent of both credit-risk factors and standard proxies for liquidity. Copyright The American Finance Association 2001.

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    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 56 (2001)
    Issue (Month): 6 (December)
    Pages: 2177-2207

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    Handle: RePEc:bla:jfinan:v:56:y:2001:i:6:p:2177-2207
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