Credit Spreads Across the Business Cycle

Research output: Contribution to conferencePaperResearchpeer-review

Abstract

This paper studies how corporate bond spreads vary with the business cycle.
I show that both level and slope of empirical credit spread curves are correlated
with the state of the economy, and I link this to variation in idiosyncratic jump
risk. I develop a structural credit risk model that accounts for both business cycle
and jump risk, and show by estimation that the model captures the counter-cyclical level and pro-cyclical slope of empirical credit spread curves. In addition, I provide a new procedure for estimation of idiosyncratic jump risk, which is consistent with observed shocks to firm fundamentals.
Original languageEnglish
Publication date2012
Number of pages60
Publication statusPublished - 2012
EventThe 39th European Finance Association Annual Meeting (EFA 2012) - Copenhagen Business School, Frederiksberg, Denmark
Duration: 15 Aug 201218 Aug 2012
Conference number: 39
http://www.efa2012.org/

Conference

ConferenceThe 39th European Finance Association Annual Meeting (EFA 2012)
Number39
LocationCopenhagen Business School
CountryDenmark
CityFrederiksberg
Period15/08/201218/08/2012
Internet address

Cite this

Nielsen, M. S. (2012). Credit Spreads Across the Business Cycle. Paper presented at The 39th European Finance Association Annual Meeting (EFA 2012), Frederiksberg, Denmark.