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Determinants of credit spreads: The role of ambiguity and information uncertainty

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  • Guo, Liang

Abstract

This paper is a survey of the theoretical and empirical literature on the determinants of credit spreads. In particular I discuss whether some observations on credit spreads can be related to information risk and ambiguity about the probabilistic structure of the process driving the fundamental value of credit securities. Corporate bond yield spreads are a compensation for the various sources of risk such as default, liquidity, taxes and systematic factors. Empirical studies show that corporate bond yield spreads are still larger than can be explained by these known determinants of credit spreads. I intertwine the literature on information risk premia and ambiguity premia and argue that some observations can possibly be related to such risks.

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  • Guo, Liang, 2013. "Determinants of credit spreads: The role of ambiguity and information uncertainty," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 279-297.
  • Handle: RePEc:eee:ecofin:v:24:y:2013:i:c:p:279-297
    DOI: 10.1016/j.najef.2012.10.003
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    6. Fischer, Henning & Stolper, Oscar, 2019. "The nonlinear dynamics of corporate bond spreads: Regime-dependent effects of their determinants," Discussion Papers 08/2019, Deutsche Bundesbank.
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    9. Changqing Luo & Mengzhen Li & Zisheng Ouyang, 2016. "An Empirical Study on the Correlation Structure of Credit Spreads based on the Dynamic and Pair Copula Functions," China Finance Review International, Emerald Group Publishing, vol. 6(3), pages 284-303, August.
    10. Brzeszczyński, Janusz & Gajdka, Jerzy & Kutan, Ali M., 2015. "Investor response to public news, sentiment and institutional trading in emerging markets: A review," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 338-352.
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    More about this item

    Keywords

    Credit spread; Information uncertainty; Ambiguity;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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