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The risk microstructure of corporate bonds: a case study from the German corporate bond market
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Fruehwirth, Manfred, Schneider, Paul and Soegner, Leopold. (2010) The risk microstructure of corporate bonds: a case study from the German corporate bond market. European Financial Management, Vol.16 (No.4). pp. 658-685. ISSN 1354-7798
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Official URL: http://dx.doi.org/10.1111/j.1468-036X.2009.00503.x
Abstract
This article presents joint econometric analysis of interest rate risk, issuer-specific risk (credit risk) and bond-specific risk (liquidity risk) in a reduced-form framework. We estimate issuer-specific and bond-specific risk from corporate bond data in the German market. We find that bond-specific risk plays a crucial role in the pricing of corporate bonds. We observe substantial differences between different bonds with respect to the relative influence of issuer-specific vs. bond-specific spread on the level and the volatility of the total spread. Issuer-specific risk exhibits strong autocorrelation and a strong impact of weekday effects, the level of the risk-free term structure and the debt to value ratio. Moreover, we can observe some impact of the stock market volatility, the respective stock's return and the distance to default. For the bond-specific risk we find strong autocorrelation, some impact of the stock market index, the stock market volatility, weekday effects and monthly effects as well as a very weak impact of the risk-free term structure and the specific stock's return. Altogether, the determinants of the spread components vary strongly between different bonds/issuers.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
| Journal or Publication Title: | European Financial Management |
| Publisher: | Wiley-Blackwell Publishing Ltd. |
| ISSN: | 1354-7798 |
| Date: | September 2010 |
| Volume: | Vol.16 |
| Number: | No.4 |
| Number of Pages: | 28 |
| Page Range: | pp. 658-685 |
| Identification Number: | 10.1111/j.1468-036X.2009.00503.x |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| URI: | http://wrap.warwick.ac.uk/id/eprint/5335 |
Data sourced from Thomson Reuters' Web of Knowledge
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