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An Empirical Study of US Corporate Credit Spreads

21 Pages Posted: 23 Jan 2012 Last revised: 11 Apr 2012

Joy Pathak

CUNY Baruch College

Date Written: December 15, 2011

Abstract

This paper presents an analysis of the factors that affect US corporate credit spreads. Using data from Bloomberg we investigate the various determinants that cause changes in credit spreads of US corporate firms. As previous research has shown, the variables that should be based on theory determine credit spread changes have limited explanatory power. Our study breaks apart a range of variables into three different sections and analyzes them individual in the groups and together using multiple regressions. We investigate the spot rate, interest rate volatility and slope for the interest rate effects and find strong relationships between spot rate and slope with credit spreads. For the effects of volatility and market uncertainty we find strong relationships between credit spreads and market volatility proxied by VIX and firm volatility proxied by an average of Call and Put implied volatility. TED spreads, SPX and RTY returns show strong relationships between macro-economic variables and credit spreads. Implied default correlations in the Investment Grade and High Yield market also show a strong positive relationship with credit spreads. Our research investigates certain macro-economic variables that have not been researched before and re-establishes previous findings for other variables post-2007 crisis.

Keywords: credit spreads, US, post crisis, CDS

Suggested Citation

Pathak, Joy, An Empirical Study of US Corporate Credit Spreads (December 15, 2011). Available at SSRN: https://ssrn.com/abstract=1989012 or http://dx.doi.org/10.2139/ssrn.1989012

Joy Pathak (Contact Author)

CUNY Baruch College ( email )

17 Lexington Avenue
New York, NY 10021
United States

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