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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

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

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

Working Paper
Monetary policy and the corporate bond market: How important is the Fed information effect?
Smolyansky, Michael; Suarez, Gustavo A. (2021-02-16)
Does expansionary monetary policy drive up prices of risky assets? Or, do investors interpret monetary policy easing as a signal that economic fundamentals are weaker than they previously believed, prompting riskier asset prices to fall? We test these competing hypotheses within the U.S. corporate bond market and find evidence strongly in favor of the second explanation—known as the "Fed information effect". Following an unanticipated monetary policy tightening (easing), returns on corporate bonds with higher credit risk outperform (underperform). We conclude that monetary policy surprises ...
Finance and Economics Discussion Series , Paper 2021-010

Working Paper
Defaults of original issue high-yield convertible bonds
Rosengren, Eric S. (1992)
The success in marketing original issue high-yield bonds has generated significant interest in their default experience. Studies comparing defaults to the par value of outstanding issues such as Altman (1987), Altman and Nammacher (1985), and Weinstein (1987) have found relatively low default rates. However, these studies understate default rates because of the rapid increase in the par value of outstanding issues and because cumulative default rates increase with years from issuance. Two recent studies by Altman (1989) and Asquith, Mullins and Wolff (AMW) (1989) have corrected these problems ...
Working Papers , Paper 92-6

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