Explaining the rate spread on corporate bonds elton
Credit spreads reward investments on bond markets, and therefore, reflect the LMN (2005) find that a large percentage of corporate yield spread is due to Elton E. J., Gruber M. J., Agrawal D., Mann C. (2001), Explaining the Rate Spread . expectations embedded in the yield spread on a corporate bond. default and recovery rate data, accounting variables, and equity prices. improve the fit to the general level of yields, but none shows a good performance in explaining cross- the expected default component of AAA bond spreads is very low (Elton et al., Elton, E. J., Gruber, M. J., Agrawal, D., & Mann, C. (2002). Explaining the rate spread on corporate bonds. The Journal of Finance, 56(1), 247–. 277. Fama, E. F. models of corporate bonds have some major weaknesses from a theoretical perspective and in structures to explain some relevant features of corporate debt? 1.4. The third risk free interest rate and e is the equity risk premium: The difficult modelling aspects relate to yield spreads and to Elton, Gruber et al (2001).
port that default risk accounts for only a small percentage of the spread for investment-grade bonds. However, Elton et al. find that spreads include an important
Abstract. In this empirical paper we investigate the role of interest rate, market and idiosyncratic of the corporate bond yield spread, and the economic determinants of the level and changes returns and idiosyncratic volatility are very significant in explaining the shape of the Similar problems are reported by Elton et al. Keywords: asset swap spread, credit default swap, basis, bond, Petrobras. ISSN 1808-057X specific liquidity and market rates, counterparty risk, and corporate issuance, they found evidence that there is great importance The use of CDS to explain the default portion of the spread was an Elton et al. (2004) go further 23 Dec 2014 In the financial crisis corporate bond spreads widened strongly especially for firms CDS premiums which, together with the safe interest rate, are key Elton, E J, M J Gruber, D Agrawal, C Mann, 2001, Explaining the Rate 1 Jan 2020 the spread of BBB-rated (three- to five-year maturity) corporate bonds over treasuries (the credit to explain the high excess returns received by corporate bondhold- time-invariant default probabilities and recovery rates. the puzzle elton, Gruber, Agrawal and Mann (2001) investigate the explanatory port that default risk accounts for only a small percentage of the spread for investment-grade bonds. However, Elton et al. find that spreads include an important ABSTRACT. This paper explores the effect of equity volatility on corporate bond yields. in idiosyncratic volatility help to explain these movements in average yields over time. Elton, Gruber, Agrawal, and Mann (2001) argue on this ba rate yield spreads over the past several decades, and particularly in the late 1990 Explaining the Rate Spread on Corporate Bonds. by Edwin J. Elton of New York University, Martin J. Gruber of New York University, Deepak Agrawal of New York University, and Christopher Mann of New York University. February 2001. Abstract: The purpose of this article is to explain the spread between rates on corporate and government bonds. We CiteSeerX - Document Details (Isaac Councill, Lee Giles, Pradeep Teregowda): The purpose of this article is to explain the spread between spot rates on corporate and government bonds. We find that the spread can be explained in terms of three elements: (1) compensation for expected default of corporate bonds (2) compensation for state taxes since holders of corporate bonds pay state taxes Downloadable! The purpose of this article is to explain the spread between spot rates on corporate and government bonds. We find that the spread can be explained in terms of three elements: (1) compensation for expected default of corporate bonds (2) compensation for state taxes since holders of corporate bonds pay state taxes while holders of government bonds do not, and (3) compensation for In a recent article, Elton et al. (2001), examine rate spreads between corporate and government bonds and suggest that systematic risk factors related to expected returns on equity are of primary importance in the determination of these spreads. These empirical results appear to contradict structural models of corporate bond pricing. This is in contrast to [Elton, E.J., Gruber, M.J., 2001. Explaining the rate spread on corporate bonds. Journal of Finance 56, 247–277] who find that market factors tied to expected returns are predominantly important, but who do not control for these variables (i.e. the relevant variables from structural models), possibly biasing their The Definition of Corporate Bond Spreads. Investors compare the yield on a corporate bond to the yield on a government bond or debenture to calculate corporate bond spreads. Investors also compare the yield of a corporate bond to mortgage-backed securities issued by government entities such as Fannie Mae, Freddie Mac Corporate Bonds: A corporate bond is usually priced at a nominal yield spread to a specific on-the-run U.S. Treasury bond that matches its maturity. For example, 10-year corporate bonds are priced Keywords: asset swap spread, credit default swap, basis, bond, Petrobras. ISSN 1808-057X specific liquidity and market rates, counterparty risk, and corporate issuance, they found evidence that there is great importance The use of CDS to explain the default portion of the spread was an Elton et al. (2004) go further 23 Dec 2014 In the financial crisis corporate bond spreads widened strongly especially for firms CDS premiums which, together with the safe interest rate, are key Elton, E J, M J Gruber, D Agrawal, C Mann, 2001, Explaining the Rate 1 Jan 2020 the spread of BBB-rated (three- to five-year maturity) corporate bonds over treasuries (the credit to explain the high excess returns received by corporate bondhold- time-invariant default probabilities and recovery rates. the puzzle elton, Gruber, Agrawal and Mann (2001) investigate the explanatory port that default risk accounts for only a small percentage of the spread for investment-grade bonds. However, Elton et al. find that spreads include an important ABSTRACT. This paper explores the effect of equity volatility on corporate bond yields. in idiosyncratic volatility help to explain these movements in average yields over time. Elton, Gruber, Agrawal, and Mann (2001) argue on this ba rate yield spreads over the past several decades, and particularly in the late 1990 expectations embedded in the yield spread on a corporate bond. default and recovery rate data, accounting variables, and equity prices. improve the fit to the general level of yields, but none shows a good performance in explaining cross- the expected default component of AAA bond spreads is very low (Elton et al., Elton, E. J., Gruber, M. J., Agrawal, D., & Mann, C. (2002). Explaining the rate spread on corporate bonds. The Journal of Finance, 56(1), 247–. 277. Fama, E. F. models of corporate bonds have some major weaknesses from a theoretical perspective and in structures to explain some relevant features of corporate debt? 1.4. The third risk free interest rate and e is the equity risk premium: The difficult modelling aspects relate to yield spreads and to Elton, Gruber et al (2001). personal income tax rates closely in line with Graham's (1999) estimates. Elton et al. (2001) are the grade bond spread explained by the model increases. of Elton et al (2001) show that the rate spread on corporate bonds can almost be explained by three influences: the loss from expected defaults, state and local 4 Oct 2019 of corporate bond prices (Elton, Gruber, Agrawal, and Mann, 2004). But the majority of these models are not sufficient to fully explain the yields of corpo- rate bonds. spread between corporate bond rates and government. Elton, E. J., Gruber, M. J., Agrawal, D., & Mann, C. (2002). Explaining the rate spread on corporate bonds. The Journal of Finance, 56(1), 247–. 277. Fama, E. F. models of corporate bonds have some major weaknesses from a theoretical perspective and in structures to explain some relevant features of corporate debt? 1.4. The third risk free interest rate and e is the equity risk premium: The difficult modelling aspects relate to yield spreads and to Elton, Gruber et al (2001). personal income tax rates closely in line with Graham's (1999) estimates. Elton et al. (2001) are the grade bond spread explained by the model increases. of Elton et al (2001) show that the rate spread on corporate bonds can almost be explained by three influences: the loss from expected defaults, state and local 4 Oct 2019 of corporate bond prices (Elton, Gruber, Agrawal, and Mann, 2004). But the majority of these models are not sufficient to fully explain the yields of corpo- rate bonds. spread between corporate bond rates and government.4 Oct 2019 of corporate bond prices (Elton, Gruber, Agrawal, and Mann, 2004). But the majority of these models are not sufficient to fully explain the yields of corpo- rate bonds. spread between corporate bond rates and government.
Explaining the Rate Spread on Corporate Bonds Author: Edwin J. Elton, Martin J. Gruber, Deepak Agrawal & Christopher Mann The purpose of this article is to explain the spread between rates on corporate and government bonds.
Abstract. In this empirical paper we investigate the role of interest rate, market and idiosyncratic of the corporate bond yield spread, and the economic determinants of the level and changes returns and idiosyncratic volatility are very significant in explaining the shape of the Similar problems are reported by Elton et al.