Replication data for: Option-Based Credit Spreads
Principal Investigator(s): View help for Principal Investigator(s) Christopher L. Culp; Yoshio Nozawa; Pietro Veronesi
Version: View help for Version V1
| Name | File Type | Size | Last Modified |
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| AER_2015_1606_Replication_Files | 10/12/2019 05:31:AM | ||
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text/plain | 14.6 KB | 10/12/2019 01:32:AM |
Project Citation:
Culp, Christopher L., Nozawa, Yoshio, and Veronesi, Pietro. Replication data for: Option-Based Credit Spreads. Nashville, TN: American Economic Association [publisher], 2018. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E113110V1
Project Description
Summary:
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We present a novel empirical benchmark for analyzing credit risk using "pseudo firms" that purchase traded assets financed with equity and zero-coupon bonds. By no-arbitrage, pseudo bonds are equivalent to Treasuries minus put options on pseudo firm assets. Empirically, like corporate spreads, pseudo bond spreads are large, countercyclical, and predict lower economic growth. Using this framework, we find that bond market illiquidity, investors' overestimation of default risks, and corporate frictions do not seem to explain excessive observed credit spreads but, instead, a risk premium for tail and idiosyncratic asset risks is the primary determinant of corporate spreads.
Scope of Project
JEL Classification:
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E23 Macroeconomics: Production
E32 Business Fluctuations; Cycles
E44 Financial Markets and the Macroeconomy
G13 Contingent Pricing; Futures Pricing; option pricing
G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
E23 Macroeconomics: Production
E32 Business Fluctuations; Cycles
E44 Financial Markets and the Macroeconomy
G13 Contingent Pricing; Futures Pricing; option pricing
G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
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