Credit Spread Changes: Determinants and Total Equity Volatility

Nicole Mastria & Michail Papadogeorgos

Studenteropgave: Kandidatafhandlinger

Abstract

Over the past years, a number of researchers have tried to answer the credit spread conundrum in the corporate bond market and to this day there have been various opposing results towards this endeavour. This paper aims to expand on previous research and explore the effect of selected financial variables in explaining credit spread changes in the U.S. market. We use transaction-level data averaged into daily observations and we run multivariate regressions and principal component analysis among different rating categories, maturities and sectors. We show that a parsimonious set of selected determinants can explain up to 74 percent of the variation in credit spread changes with no dominant principal component present in the residual variation. The results are mainly driven by total equity volatility whose relation is strictly positive and strong for almost all sample portfolios.

UddannelserCand.merc.fin Finance and Investments, (Kandidatuddannelse) Afsluttende afhandling
SprogEngelsk
Udgivelsesdato2017
Antal sider31
VejledereMarcel Fischer