Credit risk premium

Asvanunt, A and Richardson, S A (2017) Credit risk premium. Journal of Fixed Income, 26 (3). pp. 6-24. ISSN 1059-8596

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Official URL: http://www.iijournals.com/toc/jfi/current

Abstract

Despite theoretical and intuitive reasons for a credit risk premium, past research has found little supporting empirical evidence. This is primarily due to biases in computing credit excess returns which improperly account for term risk. Using data spanning 80 years in the U.S., and nearly 20 years in Europe, we find strong evidence of credit risk premium after correctly adjusting for term risk. The credit risk premium is not spanned by other known risk premia and exhibits time variation related to economic growth and aggregate default rates. These results have important implications for asset pricing and investment decisions.

Item Type: Article
Additional Information: © 2016 Institutional Investor LLC
Subjects: C > Credit management
F > Financial risk
Subject Areas: Accounting
DOI: 10.3905/jfi.2017.26.3.006
Date Deposited: 01 Nov 2016 18:08
Last Modified: 09 Aug 2017 08:54
URI: http://lbsresearch.london.edu/id/eprint/567

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