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Which factors affect corporate bonds pricing? Empirical evidence from eurobonds primary market spreads

  • Giampaolo Gabbi
  • Andrea Sironi

The question of which factors determine corporate bonds pricing is investigated by analysing the spreads of eurobonds issued by major G-10 companies during the 1991-2001 period. Three main results emerge from the analysis. First, bond ratings appear as the most important determinant of yield spreads, with investors' reliance on rating agencies judgments increasing over time. Second, the primary market efficiency and the expected secondary market liquidity are not relevant explanatory factors of spreads cross-sectional variability. Finally, rating agencies adopt a different, 'through the cycle', evaluation criteria of default risk with respect to the forward looking one adopted by bond investors.

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Article provided by Taylor & Francis Journals in its journal The European Journal of Finance.

Volume (Year): 11 (2005)
Issue (Month): 1 ()
Pages: 59-74

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Handle: RePEc:taf:eurjfi:v:11:y:2005:i:1:p:59-74
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  1. Diana Hancock & Myron L. Kwast, 2001. "Using subordinated debt to monitor bank holding companies: is it feasible?," Finance and Economics Discussion Series 2001-22, Board of Governors of the Federal Reserve System (U.S.).
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  7. Duffee, Gregory R, 1999. "Estimating the Price of Default Risk," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 197-226.
  8. Diana Hancock & Myron Kwast, 2001. "Using Subordinated Debt to Monitor Bank Holding Companies: Is it Feasible?," Journal of Financial Services Research, Springer, vol. 20(2), pages 147-187, October.
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