An Integrated Analysis of the Fundamental Determinants of Credit Risk Premiums on Corporate Debt

140 Pages Posted: 1 Oct 2019

See all articles by Adrian Headley

Adrian Headley

Oakland University

Austin Murphy

Oakland University - School of Business Administration

Date Written: September 12, 2019

Abstract

This research investigates the fundamental components of corporate credit spreads through an integrated examination of how well different models, default probability functions, and market factors explain CDS prices. Individual company yield spreads are discovered to be determined by the interrelated risks of cash, income, and valuation insolvency, along with various measures of systematic downside risk. The empirical findings indicate that the priced risk of a jump to and at default is well explained by those fundamentals, including in ex-post tests, although the financial determinants of credit spreads are found to vary significantly across different groups of companies.

Keywords: credit, debt pricing, CDS, structural models of finance, yield spreads

JEL Classification: G12

Suggested Citation

Headley, Adrian and Murphy, J. Austin, An Integrated Analysis of the Fundamental Determinants of Credit Risk Premiums on Corporate Debt (September 12, 2019). Available at SSRN: https://ssrn.com/abstract=3452864 or http://dx.doi.org/10.2139/ssrn.3452864

Adrian Headley

Oakland University ( email )

Rochester, MI 48309-4401
United States

J. Austin Murphy (Contact Author)

Oakland University - School of Business Administration ( email )

Varner Hall - Room 502
Rochester, MI 48309-4401
United States
248-370-2125 (Phone)
248-370-4275 (Fax)

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