Credit risk diversification: evidence from the eurobond market
This paper studies the role of diversification in reducing the volatility of corporate bond returns induced by changes in credit spreads. Specifically, it looks at how credit risk can be diminished when a portfolio is diversified across countries, industry sectors, maturities, seniority types and credit ratings. The role of national industrial structures for international diversification is also investigated. The results suggest that geographical diversification is more effective in reducing portfolio risk than alternative investment strategies considered, and that industry effects are not material to this result. Finally, the paper explores the implications of these findings for credit risk capital regulation in banks.
|Date of creation:||Sep 2003|
|Date of revision:|
|Contact details of provider:|| Postal: Publications Group Bank of England Threadneedle Street London EC2R 8AH|
Phone: +44 (0)171 601 4030
Fax: +44 (0)171 601 5196
Web page: http://www.bankofengland.co.uk/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:199. 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: (Publications Team)
If references are entirely missing, you can add them using this form.