Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle

• 成果类型: Article
• 署名作者: Chen, Hui; Cui, Rui; He, Zhiguo; Milbradt, Konstantin
• 署名单位: Massachusetts Institute of Technology (MIT); National Bureau of Economic Research; University of Chicago; Northwestern University
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhx107
• 发表日期: 2018
• 页码: 852
• 关键词: the-counter markets; DYNAMIC DEBT RUNS; credit spreads; capital structure; TERM STRUCTURES; SWAP MARKET; premium; prices; CRISIS; puzzle

摘要

We develop a structural credit model to examine how interactions between default and liquidity affect corporate bond pricing. The model features debt rollover and bond-price-dependent holding costs. Over the business cycle and in the cross-section, the model matches average default rates and credit spreads in the data, and captures variations in bid-ask and bond-CDS spreads. A structural decomposition reveals that default-liquidity interactions can account for 10%-24% of the level of credit spreads and 16%-46% of the changes in spreads over the business cycle. Further, liquidity-related corporate bond financing costs amount to 6% of the total issuance amount from 1996 to 2015.