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Title: Determinants of U.S. corporate credit spreads.
Authors: Kume, Ortenca
Supervisors: Weir, Charlie
Keywords: Credit spreads
Default risk
Bond pricing
Panel Granger caUSality,
Panel data ARCH/GARCH analysis
Issue Date: Jan-2012
Publisher: Robert Gordon University
Abstract: This thesis deals with various issues regarding determinants of US corporate credit spreads. These spreads are estimated as the difference between yields to maturity for corporate bonds and default-free instruments (Treasury bonds) of the same maturity. Corporate credit spreads are considered as measures of default risk. However, the premium required by investors for holding risky rather than risk-free bonds will incorporate a compensation not only for the default risk but also for other factors related to corporate bonds such as market liquidity or tax differential between corporate and Treasury bonds. In this study we firstly examine the relationship between bond ratings and credit spreads given that bond rating changes are expected to carry some informational value for debt investors. The findings indicate that bond ratings generally carry some informational value for corporate bond investors. The Granger causal relationship is more evident for negative watch lists and during periods of uncertainty in financial markets. In line with previous studies, our results suggest that changes in credit spreads are significantly related to interest rate levels, systematic risk factors (Fama and French) factors and equity returns.
Appears in Collections:Theses (Accounting & Finance)

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