We consider the debt capacity of a risky asset when debt is being rolled over and there is a liquidation cost in case of default. We show that debt capacity depends on how information about the quality of the asset is revealed. When the information structure is based on “optimistic”...

This paper finds that while covered interest rate parity holds for large and small triple A rated economies, it holds for emerging markets only for a three-month maturity. For a five-year horizon the size and frequency of violations lead to the conclusion that covered interest rate parity does...

This doctoral thesis develops regime-switching models of the term structure of interest rates. A general framework is proposed to model the joint dynamics of yield curves associated with different debtors (Chapter 2). This framework is exploited to analyse the fluctuations of ten euro-area...

This work examines the information value of local Israeli credit rating announcements. This matter is also important to other small markets, in which a debt issuer may take advantage of a “rating shopping” process or choose to avoid a rating procedure altogether, because the agencies do not...

A rating trigger is a particular type of debt covenant that mandates the borrower to maintain its own credit rating above a certain rating threshold, requiring in the event of a rating downgrade the adoption of specific enforceable actions aimed at securing the lender claims from the borrower's...

Do exchange rates react to exogenous capital movements? We explore this issue based on the redefinition of the MSCI international equity indices announced on 10 December 2000 and implemented in two steps on 30 November 2001 and 31 May 2002. The index changes implied major changes in the...

This paper studies the impact of credit rating agency (CRA) announcements on the value of the Euro and the yields of French, Italian, German and Spanish long-term sovereign bonds during the culmination of the Eurozone debt crisis in 2011-2012. The employed GARCH models show that CRA downgrade...

When rates of return on bonds are computed over extremely short holding periods, the ex post cross-sectional relationship between realized return and risk is linear. It is therefore possible, at any time, to extrapolate the cross-sectional relationship to a zero risk level, and thus to determine...

Theoretically, corporate debt is economically equivalent to safe debt minus a put option on the firm’s assets. We empirically show that indeed portfolios of long Treasuries and short traded put options (“pseudo bonds”) closely match the properties of traded corporate bonds. Pseudo bonds...