US Corporate Bond Yield Spread : A default risk debate
According to theoretical models of valuing risky corporate securities, risk of default is primary component in overall yield spread. However, sizable empirical literature considers it otherwise by giving more importance to non-default risk factors. Current study empirically attempts to provide relat...
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creator | Shah, Syed Muhammad Noaman Ahmed Kebewar, Mazen |
description | According to theoretical models of valuing risky corporate securities, risk
of default is primary component in overall yield spread. However, sizable
empirical literature considers it otherwise by giving more importance to
non-default risk factors. Current study empirically attempts to provide
relative solution to this conundrum by presuming that problem lies in the
subjective empirical treatment of default risk. By using post-hoc estimator
approach of Lubotsky & Wittenberg (2006), we construct an efficient indicator
for risk of default, by using sample of 252 US non-financial corporate data
(2000-2010). On average, our results validate that almost 48% of change in
yield spread is explained by default risk especially in recent financial crisis
period (2007-2009). Hence, our results relatively suggest that potential
problem lies in the ad-hoc measurement methods used in existing empirical
literature. |
doi_str_mv | 10.48550/arxiv.1303.3391 |
format | Article |
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of default is primary component in overall yield spread. However, sizable
empirical literature considers it otherwise by giving more importance to
non-default risk factors. Current study empirically attempts to provide
relative solution to this conundrum by presuming that problem lies in the
subjective empirical treatment of default risk. By using post-hoc estimator
approach of Lubotsky & Wittenberg (2006), we construct an efficient indicator
for risk of default, by using sample of 252 US non-financial corporate data
(2000-2010). On average, our results validate that almost 48% of change in
yield spread is explained by default risk especially in recent financial crisis
period (2007-2009). Hence, our results relatively suggest that potential
problem lies in the ad-hoc measurement methods used in existing empirical
literature.</description><identifier>DOI: 10.48550/arxiv.1303.3391</identifier><language>eng</language><subject>Quantitative Finance - Pricing of Securities ; Quantitative Finance - Statistical Finance</subject><creationdate>2013-03</creationdate><rights>http://arxiv.org/licenses/nonexclusive-distrib/1.0</rights><oa>free_for_read</oa><woscitedreferencessubscribed>false</woscitedreferencessubscribed></display><links><openurl>$$Topenurl_article</openurl><openurlfulltext>$$Topenurlfull_article</openurlfulltext><thumbnail>$$Tsyndetics_thumb_exl</thumbnail><link.rule.ids>228,230,780,885</link.rule.ids><linktorsrc>$$Uhttps://arxiv.org/abs/1303.3391$$EView_record_in_Cornell_University$$FView_record_in_$$GCornell_University$$Hfree_for_read</linktorsrc><backlink>$$Uhttps://doi.org/10.48550/arXiv.1303.3391$$DView paper in arXiv$$Hfree_for_read</backlink></links><search><creatorcontrib>Shah, Syed Muhammad Noaman Ahmed</creatorcontrib><creatorcontrib>Kebewar, Mazen</creatorcontrib><title>US Corporate Bond Yield Spread : A default risk debate</title><description>According to theoretical models of valuing risky corporate securities, risk
of default is primary component in overall yield spread. However, sizable
empirical literature considers it otherwise by giving more importance to
non-default risk factors. Current study empirically attempts to provide
relative solution to this conundrum by presuming that problem lies in the
subjective empirical treatment of default risk. By using post-hoc estimator
approach of Lubotsky & Wittenberg (2006), we construct an efficient indicator
for risk of default, by using sample of 252 US non-financial corporate data
(2000-2010). On average, our results validate that almost 48% of change in
yield spread is explained by default risk especially in recent financial crisis
period (2007-2009). Hence, our results relatively suggest that potential
problem lies in the ad-hoc measurement methods used in existing empirical
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of default is primary component in overall yield spread. However, sizable
empirical literature considers it otherwise by giving more importance to
non-default risk factors. Current study empirically attempts to provide
relative solution to this conundrum by presuming that problem lies in the
subjective empirical treatment of default risk. By using post-hoc estimator
approach of Lubotsky & Wittenberg (2006), we construct an efficient indicator
for risk of default, by using sample of 252 US non-financial corporate data
(2000-2010). On average, our results validate that almost 48% of change in
yield spread is explained by default risk especially in recent financial crisis
period (2007-2009). Hence, our results relatively suggest that potential
problem lies in the ad-hoc measurement methods used in existing empirical
literature.</abstract><doi>10.48550/arxiv.1303.3391</doi><oa>free_for_read</oa></addata></record> |
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subjects | Quantitative Finance - Pricing of Securities Quantitative Finance - Statistical Finance |
title | US Corporate Bond Yield Spread : A default risk debate |
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