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Report
Multiple ratings and credit standards: differences of opinion in the credit rating industry
Packer, Frank; Cantor, Richard (1995)
This paper tests whether the tendency of third rating agencies to assign higher ratings than Moody's and Standard & Poor's results from more lenient standards or sample selection bias. More lenient standards might result from incentives to satisfy issuers who are, in fact, the purchasers of the ratings. Selection bias might be important because issuers that expect a low rating from a third agency are unlikely to request one. Our analysis of a broad sample of corporate bond ratings at year-end 1993 reveals that, although sample selection bias appears important, it explains less than half the ...
Research Paper , Paper 9527

Journal Article
The corporate bond credit spread puzzle
Christensen, Jens H. E. (2008)
It is common to view interest on a corporate bond as reflecting the risk-free, longer-term interest rate, such as that on a 10-year Treasury bond, plus a spread related to the credit risk of the corporation issuing the bond. However, empirical analysis of the determinants of corporate bond rates has turned out to be more demanding than it appears on the surface. This has led researchers to talk about a credit spread puzzle. In this Economic Letter we will first detail the evidence for the existence of such a credit spread puzzle. In a second step we will take a closer look at some of the ...
FRBSF Economic Letter

Working Paper
The external finance premium and the macroeconomy: US post-WWII evidence
De Graeve, Ferre (2008)
The central variable of theories of financial frictions--the external finance premium--is unobservable. This paper distils the external finance premium from a DSGE model estimated on U.S. macroeconomic data. Within the DSGE framework, movements in the premium can be given an interpretation in terms of shocks driving business cycles. A key result is that the estimate--based solely on nonfinancial macroeconomic data--picks up over 70 percent of the dynamics of lower grade corporate bond spreads. The paper also identifies a gain in fitting key macroeconomic aggregates by including financial ...
Working Papers , Paper 0809

Working Paper
Insurers’ Investments and Insurance Prices
Knox, Benjamin; Sørensen, Jakob Ahm (2024-07-19)
We develop a theory that connects insurance prices, insurance companies’ investment behavior, and equilibrium asset prices. Consistent with the model’s predictions, we show empirically that (1) insurers with more stable insurance funding take more investment risk and, therefore, earn higher average investment returns; (2) insurers set lower prices on policies when expected investment returns are higher, both in the cross-section of insurance companies and in the time series. Our results hold for both life insurance and property and casualty insurance companies. The findings show that ...
Finance and Economics Discussion Series , Paper 2024-058

Report
Event risk premia and bond market incentives for corporate leverage
Zimmer, Steven A. (1990)
Research Paper , Paper 9028

Discussion Paper
Corporate Bond Market Liquidity Redux: More Price-Based Evidence
Vogt, Erik; Fleming, Michael J.; Wojtowicz, Zachary; Adrian, Tobias (2016-02-09)
In a recent post, we presented some preliminary evidence suggesting that corporate bond market liquidity is ample. That evidence relied on bid-ask spread and price impact measures. The findings generated significant discussion, with some market participants wondering about the magnitudes of our estimates, their robustness, and whether such measures adequately capture recent changes in liquidity. In this post, we revisit these measures to more thoroughly document how they have varied over time and the importance of particular estimation approaches, trade size, trade frequency, and the ...
Liberty Street Economics , Paper 20160209

Monograph
Event risk premia and bond market incentives for corporate leverage
Zimmer, Steven A. (1990)
Monograph

Report
Underwriter price support and the IPO underpricing puzzle
Ruud, Judith S. (1991)
Research Paper , Paper 9117

Corporate Bond Spreads and the Pandemic II: Heterogeneity across Sectors
Ebsim, Mahdi; Kozlowski, Julian; Faria-e-Castro, Miguel (2020-04-14)
The COVID-19 pandemic’s effects on firm borrowing costs have been heterogeneous, with some sectors being more affected than others.
On the Economy

Journal Article
Can structural models of default explain the credit spread puzzle?
Goldstein, Robert S. (2010)
This Economic Letter discusses why standard versions of structural models of default tend to underpredict the level of risk premiums and variations in those premiums over time. Drawing on recent research, the Letter suggests modifications to these standard models in order to better explain historical levels and time variations of corporate bond spreads.
FRBSF Economic Letter

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