Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit Default Swap Market

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CFA Digest
February 2006 | Vol. 36 | No. 1 | 2 pages
Source: CFA Institute
Francis A. Longstaff, CFA Sanjay Mithal Eric Neis
Christopher J. Sullivan, CFA (Reviewer)

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Summary

The authors use bond prices and credit default swap premiums to determine the composition of corporate yield spreads. Although default risk accounts for most of the spread, there is also a significant time-varying nondefault component directly related to liquidity effects. The results extend earlier research that considers the market price of credit risk to be higher than implied by select structural models.

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Topics
Fixed Income
    :
  • Analysis of Credit Risk
|
Portfolio Management
    :
  • Fixed-Income Portfolio Management Strategies
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