In this paper, we examine the dynamic behavior of credit spreads on corporate bond portfolios. We propose an econometric model of credit spreads that incorporates portfolio rebalancing, the near unit root property of spreads, the autocorrelation in spread changes, the ARCH conditional...

No consensus has yet emerged from the existing credit risk literature on how muchof the observed corporate-Treasury yield spreads can be explained by credit risk. In thispaper, we propose a new calibration approach based on historical default data and showthat one can indeed obtain consistent...

This paper investigates predictions of structural credit risk models for interest rate sensitivities of corporate bond returns. Recent evidence has shown that the existing models fail to capture this sensitivity (a stylized fact referred to as the interest rate sensitivity puzzle). We propose...

What drives short-term credit spreads: credit risk, liquidity risk, or both? Despite a large empirical literature on corporate yield spreads, very few studies have examined this important question. Using a novel data set of secondary market transaction prices of Chinese commercial papers, we...