Rating And Other Factors Explaining The Corporate Credit Spread: Empirical Evidence From Tunisian Bond Market
This is an examination of the determinants of corporate bond credit spreads using both primary and secondary market spreads for Tunisian corporate bonds. The factors which I use as explanatory variables in our estimations can be divided into three categories: market variables, issue and issuer characteristics. To some extent, these three categories correspond to the different types of risk, namely interest rate risk, liquidity risk and credit risk. Using OLS regressions, our empirical results indicate that primary market spreads are sensible to issue characteristics such as rating. Also, spreads observed in secondary market are sensible to market variables namely Exchange Index and Slope, characteristics issuers and issues (Rating and Time to maturity). This is the first study to indicate that the explanatory power of factors depends of spreads modelled. Hence, corporate credit spreads are driven by both default and interest rate risk for the secondary market and only by default risk for the primary market.
Volume (Year): 3 (2008)
Issue (Month): 4(6)_Winter2008 ()
|Contact details of provider:|| Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14|
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jean Helwege & Christopher M. Turner, 1999. "The Slope of the Credit Yield Curve for Speculative-Grade Issuers," Journal of Finance, American Finance Association, vol. 54(5), pages 1869-1884, October.
- Brown, Alessio J. G. & Žarnić, Žiga, 2003. "Explaining the increased German credit spread: The role of supply factors," Kiel Advanced Studies Working Papers 412, Kiel Institute for the World Economy (IfW).
- Lawrence Fisher, 1959. "Determinants of Risk Premiums on Corporate Bonds," Journal of Political Economy, University of Chicago Press, vol. 67, pages 217-217.
- Klaus Düllmann & Marliese Uhrig‐Homburg & Marc Windfuhr, 2000. "Risk structure of interest rates: an empirical analysis for Deutschemark‐denominated bonds," European Financial Management, European Financial Management Association, vol. 6(3), pages 367-388.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-470, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Edwin J. Elton, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, 02.
- Warga, Arthur, 1992. "Bond Returns, Liquidity, and Missing Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(04), pages 605-617, December.
- Robert A. Jarrow & David Lando & Stuart M. Turnbull, 2008. "A Markov Model for the Term Structure of Credit Risk Spreads," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 18, pages 411-453 World Scientific Publishing Co. Pte. Ltd..
- Jarrow, Robert A & Lando, David & Turnbull, Stuart M, 1997. "A Markov Model for the Term Structure of Credit Risk Spreads," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 481-523.
- Gregory R. Duffee, 1998. "The Relation Between Treasury Yields and Corporate Bond Yield Spreads," Journal of Finance, American Finance Association, vol. 53(6), pages 2225-2241, December.
- Sarig, Oded & Warga, Arthur, 1989. "Bond Price Data and Bond Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 367-378, September.
- Zhiwei Zhang, 2002. "Corporate Bond Spreads and the Business Cycle," Staff Working Papers 02-15, Bank of Canada.
- Yu, Fan, 2005. "Accounting transparency and the term structure of credit spreads," Journal of Financial Economics, Elsevier, vol. 75(1), pages 53-84, January.
- Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409 World Scientific Publishing Co. Pte. Ltd..
- Jarrow, Robert A & Turnbull, Stuart M, 1995. " Pricing Derivatives on Financial Securities Subject to Credit Risk," Journal of Finance, American Finance Association, vol. 50(1), pages 53-85, March.
- Jan Ericsson & Olivier Renault, 2006. "Liquidity and Credit Risk," Journal of Finance, American Finance Association, vol. 61(5), pages 2219-2250, October.
- Olivier Renault & Jan Ericsson, 2000. "Liquidity and Credit Risk," FMG Discussion Papers dp362, Financial Markets Group.
- Jan ERICSSON & Olivier RENAULT, 2001. "Liquidity and Credit Risk," FAME Research Paper Series rp42, International Center for Financial Asset Management and Engineering.
- Longstaff, Francis A & Schwartz, Eduardo S, 1995. " A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
- Batten, Jonathan A. & Hogan, Warren P., 2003. "Time variation in the credit spreads on Australian Eurobonds," Pacific-Basin Finance Journal, Elsevier, vol. 11(1), pages 81-99, January.
- Mascia Bedendo & Lara Cathcart & Lina El-Jahel, 2007. "The Slope Of The Term Structure Of Credit Spreads: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(2), pages 237-257. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ush:jaessh:v:3:y:2008:i:4(6)_winter2008:42. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Laura Stefanescu)
If references are entirely missing, you can add them using this form.