Prior literature mostly finds bond yield spreads to be insufficiently explained by credit risk (the 'credit spread puzzle'). Recently, Feldhütter and Schaefer (2018) and Bai et al. (2020) revived this debate. We utilize the removal of sovereign guarantees for savings banks and state banks in...

Credit spreads are the yields of risky debt securities minus risk-free rates. The finance literature has long argued which share of them is due to credit risk and which share results from other factors. We suggest a novel set of multiple quasi-natural experiments based on government guarantees...

Credit default swaps (CDS) played an important role in the financial crisis of 2008. While CDS can be used to hedge risks, they can also be used for speculative purposes (as occurred during the financial crisis) and regulations have been proposed to limit such speculative use. Here, we provide...

This paper studies strategic default using an experimental approach. The experiment considers a stochastic asset process and a loan with no down-payment. The treatments are two asset volatilities (high and low) and the absence and presence of social interactions via a direct effect on the...

In this paper, we report the design and results of an experiment in human judgment in which decision makers were allowed to choose the information cues they used in making their judgments. The results of this study show that the subjects' choice of information, rather than their processing of...