On Credit-Spread Slopes and Predicting Bank Risk
We examine whether bank credit-spread curves, engendered by subordinated debt, would help predict bank risk. We extract credit-spread curves for each bank each quarter and analyze the predictive properties of credit-spread slopes. We find that credit-spread slopes are significant predictors of future credit spreads. We also find that credit-spread slopes provide significant additional information on future bank risk variables, over and above other bank-specific and market-wide information.
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Volume (Year): 38 (2006)
Issue (Month): 6 (September)
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