Vanishing Contagion Spreads

• 成果类型: Article
• 署名作者: Duarte, Diogo; Prieto, Rodolfo; Rindisbacher, Marcel; Saporito, Yuri F.
• 署名单位: State University System of Florida; Florida International University; INSEAD Business School; Boston University; Getulio Vargas Foundation
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2020.3868
• 发表日期: 2022
• 页码: 740-772
• 关键词: credit spreads; contagion; exchange economy; incomplete information; risk premia representation

摘要

We study default in a multifirm equilibrium setting with incomplete information. Defaults are consistent with the firm's balance sheet and aggregation. We show that the endogenous volatility and jump size of debt and equity generated by other firms' shocks vanish as the number of firms in the economy increases. As a result, credit spreads depend asymptotically only on the firms' own cash flow risk. Our vanishing contagion spread result calls into question recent findings based on production economies, in which quantities of risk (volatilities and jump sizes of securities) are specified exogenously, that attribute credit spreads mostly to contagion.