Credit risk premium
Journal
Journal of Fixed Income
Subject
Accounting
Publishing details
Authors / Editors
Asvanunt A;Richardson S A
Biographies
Publication Year
2017
Abstract
Despite theoretical and intuitive reasons for a credit risk premium, past research has found little supporting empirical evidence. This is primarily due to biases in computing credit excess returns which improperly account for term risk. Using data spanning 80 years in the U.S., and nearly 20 years in Europe, we find strong evidence of credit risk premium after correctly adjusting for term risk. The credit risk premium is not spanned by other known risk premia and exhibits time variation related to economic growth and aggregate default rates. These results have important implications for asset pricing and investment decisions.
Keywords
Risk premium; Credit risk; Asset allocation
Available on ECCH
No
