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Corporate Yield Spreads : Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market

Longstaff, Francis A. - 2004

We use the information in credit-default swaps to obtain direct measures of the size of the default and nondefault components in corporate spreads. We find that the majority of the corporate spread is due to default risk. This result holds for all rating categories and is robust to the...

Persistent link: https://www.econbiz.de/10012468275

Global Business Cycles and Credit Risk

Pesaran, M. Hashem - 2005

The potential for portfolio diversification is driven broadly by two characteristics: the degree to which systematic risk factors are correlated with each other and the degree of dependence individual firms have to the different types of risk factors. Using a global vector autoregressive...

Persistent link: https://www.econbiz.de/10012467187

On the Network Topology of Variance Decompositions : Measuring the Connectedness of Financial Firms

Diebold, Francis X. - 2011

We propose several connectedness measures built from pieces of variance decompositions, and we argue that they provide natural and insightful measures of connectedness among financial asset returns and volatilities. We also show that variance decompositions define weighted, directed networks, so...

Persistent link: https://www.econbiz.de/10012461167

Credit Risk and Disaster Risk

Gourio, Francois - 2011

Corporate credit spreads are large, volatile, countercyclical, and significantly larger than expected losses, but existing macroeconomic models with financial frictions fail to reproduce these patterns, because they imply small and constant aggregate risk premia. Building on the idea that...

Persistent link: https://www.econbiz.de/10012461632

Credit Spreads as Predictors of Real-Time Economic Activity : A Bayesian Model-Averaging Approach

Faust, Jon - 2011

Employing a large number of real and financial indicators, we use Bayesian Model Averaging (BMA) to forecast real-time measures of economic activity. Importantly, the predictor set includes option-adjusted credit spread indexes based on bond portfolios sorted by maturity and credit risk as...

Persistent link: https://www.econbiz.de/10012461932

Valuing Toxic Assets : An Analysis of CDO Equity

Longstaff, Francis A. - 2009

How does the market value complex structured-credit securities? This issue is central to understanding the current financial crisis and identifying effective policy measures. We study this issue from a novel perspective by contrasting the valuation of CDO equity with that of bank stocks. This is...

Persistent link: https://www.econbiz.de/10012463777

Should Derivatives be Privileged in Bankruptcy?

Bolton, Patrick - 2011

Derivative contracts, swaps, and repos enjoy "super-senior" status in bankruptcy: they are exempt from the automatic stay on debt and collateral collection that applies to virtually all other claims. We propose a simple corporate finance model to assess the effect of this exemption on firms'...

Persistent link: https://www.econbiz.de/10012461058

Banks and Derivatives

Gorton, Gary - 1995

interest-rate sensitivities of interest rate swap positions of U.S. commercial banks to empirically address the question of … whether swap contracts have increased or decreased systematic risk in the U.S. banking system. We find that the banking system … as a whole faces little net interest-rate risk from swap portfolios …

Persistent link: https://www.econbiz.de/10012473787

Risk-On Risk-Off : A Multifaceted Approach to Measuring Global Investor Risk Aversion

Chari, Anusha; Stedman, Karlye Dilts; Lundblad, Christian - National Bureau of Economic Research - 2023

This paper defines risk-on risk-off (RORO), an elusive terminology in pervasive use, as the variation in global investor risk aversion. Our high-frequency RORO index captures time-varying investor risk appetite across multiple dimensions: advanced economy credit risk, equity market volatility,...

Persistent link: https://www.econbiz.de/10014437038

Contingent Credit Under Stress

Acharya, Viral V.; Jager, Maximilian; Steffen, Sascha - National Bureau of Economic Research - 2023

Over the past two decades, banks have increasingly focused on offering contingent credit in the form of credit lines as a primary means of corporate borrowing. We review the existing body of research regarding the rationales for banks' provision of liquidity insurance in the form of credit...

Persistent link: https://www.econbiz.de/10014437040