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Determinants of Credit Spreads

An Empirical Analysis for the European Corporate Bond Market

by Arne Wilkes (Author)
©2011 Thesis 138 Pages

Summary

Credit spreads express how markets evaluate the riskiness of corporate bonds compared to risk-free investments. Since credit spreads have been highly volatile especially during the last decade it is important for academics and practitioners alike to understand the dynamic interdependencies between credit spreads and their determinants. Based on a sample of European corporate bonds and different macroeconomic variables the author analyzes the determinants of credit spreads during the period of 1999 to 2009. With a macro-finance term structure model he shows that the European corporate bond market is largely integrated with some remaining segmentation. Furthermore, panel regressions yield that declining liquidity leads to a significant widening of credit spreads especially during the recent financial crisis. Finally, he demonstrates based on a cointegration analysis that a long-term relationship exists between credit spreads and their determinants and that credit spreads were significantly overpriced after the collapse of Lehman Brothers but have almost returned to equilibrium towards the end of 2009.

Details

Pages
138
Publication Year
2011
ISBN (Hardcover)
9783631606049
Language
English
Keywords
macro-finance liquidity risk financial crisis overpriced
Published
Frankfurt am Main, Berlin, Bern, Bruxelles, New York, Oxford, Wien, 2011. 138 pp., num. tables and graphs

Biographical notes

Arne Wilkes (Author)

Arne Wilkes studied business administration at the WHU – Otto Beisheim School of Management and obtained his doctoral degree at the European Business School (EBS). Today, he works as a consultant at a management consultant firm.

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Title: Determinants of Credit Spreads