Factors Affecting the Valuation of Corporate Bonds

Elton, Edwin J.; Gruber, Martin J.; Agrawal, Deepak; Mann, Christopher

doi:10.2139/ssrn.307139

Cited by 35 publications

(19 citation statements)

References 17 publications

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“…The most popular approach is to regress yields (and occasionally bid-ask spreads or trading volumes) of individual corporate bonds on a range of proxies for interest rate, credit and liquidity risk. Examples of studies that used this method include Gehr and Martell (1992), Shulman, Bayless andPrice (1993), Chakravarty andSarkar (1999), Alexander, Edwards and Ferri (2000), Hong and Warga (2000), CollinDufresne, Goldstein and Martin (2001), Ericsson and Renault (2001), Schultz (2001), Díaz and Navarro (2002), Elton, Gruber, Agrawal and Mann (2002) and Mullineaux and Roten (2002).…”

Section: Literaturementioning

confidence: 99%

Comparing Possible Proxies of Corporate Bond Liquidity

Houweling¹,

Mentink

Vorst

2003

SSRN Journal

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We consider eight different proxies (issued amount, coupon, listed, age, missing prices, yield volatility, number of contributors and yield dispersion) to measure corporate bond liquidity and use a five-variable model to control for interest rate risk, credit risk, maturity, rating and currency differences between bonds. The null hypothesis that liquidity risk is not priced in our data set of euro corporate bonds is rejected for seven out of eight liquidity proxies. We find significant liquidity premia, ranging from 9 to 24 basis points. A comparison test between liquidity proxies shows limited differences between the proxies. JEL codes:C13, G12

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Section: Literaturementioning

confidence: 99%

Comparing Possible Proxies of Corporate Bond Liquidity

Houweling¹,

Mentink

Vorst

2003

SSRN Journal

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“…Elton et al (2004) go further and state that the most direct liquidity measurement is the difference between bid and ask rates from a spread to another. Some authors claim that specific liquidity explains just some of the spread, and the reaction of each company to market liquidity is what best explains the liquidity component (Collin-Dufresne, Goldstein & Martin, 2001).…”

Section: Literature Reviewmentioning

confidence: 99%

“…So, it may be expected that every time a company accesses the international capital market, investors who hold bonds in their portfolios that will become off-the-run (less traded), as a result of a new issuance, are going to get rid of them to make room for acquiring new bonds, while maintaining the exposure to Petrobras' credit. Thus, there is a strong movement to sell the old securities after the issuance is announced, as they will become less traded and show less liquidity, as cited by Chakravarty and Sarkar (1999), Elton et al (2004), and Elizalde et al (2009), and, in a way, also by De Wit (2006). We used a dummy that takes value 1 when new securities are issued in the international capital market in dollars, by Petrobras, and 0 otherwise, in order to capture the average impact of a new issuance on spreads.…”

Section: Figure 5 Cds-bond Basis (5 and 10 Years) Source: Prepared Bymentioning

confidence: 99%

Determinantes do Bond Spread e do Credit Default Swap: Por que são diferentes? O caso da Petrobras

Oliveira

Pinto

2016

Rev. contab. finanç.

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In this article, we study the main determinants of Petrobras' credit risk, measured through asset swap spreads (ASWs) and credit default swaps (CDS), replicating the main papers on the theme and analyzing whether the two products price risk differently. Our results allow us to conclude that, curiously, firm-specific (microeconomic) variables are little or no significant to explain the discrepancy between the markets, and that a large part of the difference between them (also known as the CDS-Bond Basis) may be explained by the response of each product to macroeconomic variables. The main contribution of this article is being the first in the literature addressing the theme credit risk or liquidity of a Brazilian company, from the viewpoint of bond spreads and CDS, traded in the foreign market, besides discussing why there is a difference between them.

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“…Gabbi andSironi 2005 andElton et al 2004), since they provide new information to stock markets (Hooper, Hume, and Kim 2005). The rating agencies try to assess the risk by employing an encompassing catalogue of measures.…”

Section: Assumption Regarding a Potential Influencementioning

confidence: 99%

Market Discipline and the Use of Government Bonds as Collateral in the Emu

Ullrich

2006

SSRN Journal

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Die Discussion Papers dienen einer möglichst schnellen Verbreitung von neueren Forschungsarbeiten des ZEW. Die Beiträge liegen in alleiniger Verantwortung der Autoren und stellen nicht notwendigerweise die Meinung des ZEW dar.Discussion Papers are intended to make results of ZEW research promptly available to other economists in order to encourage discussion and suggestions for revisions. The authors are solely responsible for the contents which do not necessarily represent the opinion of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp06046.pdf Non-technical SummaryThe confidence that financial markets can substantially restrict the debt behaviour of governments is not high. One reason for the lack of market discipline could be that the European Central Bank (ECB) accepts all government bonds of the EU governments at the same conditions as eligible for monetary policy transactions. A differentiation with respect to potentially varying risk levels is not given. This could support the idea that government bond in the EU are equally secure and have the same low default risk.The use of government bonds as collateral in monetary policy transactions with the ECB has declined since 1999. Even if the ECB has not yet excluded securities from the list of eligible assets, this list contains an explicit enumeration of eligible assets. All bonds issued from governments of the EU are contained in the class with the lowest risk, despite large differences in debt and deficit. The acceptance of all government bonds at the same conditions is not followed by the markets, as the ratings of private rating agencies show.The rating of the central bank and the rating of the private agencies can be seen as two signals about the default risk of government bonds. Because the central bank and the rating agencies are expected to devote a considerable amount of resources to the assessment of the default risk of government bonds, we assume that the institutions identify the risk correctly on average. However, the assessed risk will not be correct in any case.The extent to which rating signals affect investors' expectations about the default risk of government bonds will then depend on the relationship between the evaluation error of the institutions. An effect of the ECB classification of a government bond on the risk premium can only arise theoretically if the error of the ECB is independent from that of the rating agency. In case of unbiased signals of the ECB and the agency, and the ECB signal depending on that of the rating agency, investors would ignore the signal of the ECB.If financial markets see the ECB as an independent source of information with regard to the default risk of government bonds, the classification as eligible assets for monetary policy transactions could influence the risk premia of bonds. In this case, it could be that the registration as eligible assets of all government bonds of the EU leads to more uniform risk premia than without this signal. Market Discipline an...

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Factors Affecting the Valuation of Corporate Bonds

Cited by 35 publications

References 17 publications

Comparing Possible Proxies of Corporate Bond Liquidity

Comparing Possible Proxies of Corporate Bond Liquidity

Determinantes do Bond Spread e do Credit Default Swap: Por que são diferentes? O caso da Petrobras

Market Discipline and the Use of Government Bonds as Collateral in the Emu

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