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Modeling the effect of macroeconomic factors on corporate default and credit rating transitions

  • Figlewski, Stephen
  • Frydman, Halina
  • Liang, Weijian
Registered author(s):

    We explore how general economic conditions impact defaults and major credit rating changes by fitting reduced-form Cox intensity models with a broad range of macroeconomic and firm-specific ratings-related variables. For all corporate issuers in the period 1981–2002 we find both types of factors strongly influenced the risk of a credit event. However, while the effects of ratings-related factors were consistent with expectations and very robust under different specifications, significance levels and even signs for the macro variable coefficients depended heavily on which other variables were included. This sheds light on the disparate results reported in earlier studies.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1059056011000670
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    Article provided by Elsevier in its journal International Review of Economics & Finance.

    Volume (Year): 21 (2012)
    Issue (Month): 1 ()
    Pages: 87-105

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    Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:87-105
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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    1. Carling, Kenneth & Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2007. "Corporate credit risk modeling and the macroeconomy," Journal of Banking & Finance, Elsevier, vol. 31(3), pages 845-868, March.
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    5. Yan, Alice Xie & Shi, Jian & Wu, Chunchi, 2008. "Do macroeconomic variables matter for pricing default risk?," International Review of Economics & Finance, Elsevier, vol. 17(2), pages 279-291.
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    17. Sanjiv Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2006. "Common Failings: How Corporate Defaults are Correlated," NBER Working Papers 11961, National Bureau of Economic Research, Inc.
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