IDEAS home Printed from https://ideas.repec.org/a/bla/ausecp/v44y2005i1p30-46.html
   My bibliography  Save this article

The Systematic Risk Of Debt: Australian Evidence

Author

Listed:
  • KEVIN DAVIS

Abstract

This paper examines systematic risk (betas) of Australian government debt securities for the period 1979–2004 and makes three contributions to academic research and practical debate. First, the empirical work provides direct evidence on the systematic risk of government debt, and provides a benchmark for estimating the systematic risk of corporate debt which is relevant for cost of capital estimation and for optimal portfolio selection by asset managers such as superannuation funds. Second, analysis of reasons for non‐zero (and time varying) betas for fixed income securities aids understanding of the primary sources of systematic risk. Third, the results cast light on the appropriate choice of maturity of risk free interest rate for use in the Capital Asset Pricing Model and have implications for the current applicability of historical estimates of the market risk premium. Debt betas are found to be, on average, significantly positive and (as expected) closely related, cross sectionally, to duration. They are, however, subject to significant time series variation, and over the past few years the pre‐existing positive correlation between bond and stock returns appears to have vanished.

Suggested Citation

  • Kevin Davis, 2005. "The Systematic Risk Of Debt: Australian Evidence," Australian Economic Papers, Wiley Blackwell, vol. 44(1), pages 30-46, March.
    • Handle: RePEc:bla:ausecp:v:44:y:2005:i:1:p:30-46
    DOI: 10.1111/j.1467-8454.2005.00247.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-8454.2005.00247.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1467-8454.2005.00247.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jeffery D Amato & Eli M Remolona, 2003. "The credit spread puzzle," BIS Quarterly Review, Bank for International Settlements, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Johansson, Anders C., 2010. "Asian sovereign debt and country risk," Pacific-Basin Finance Journal, Elsevier, vol. 18(4), pages 335-350, September.
    2. Christian Klein & Christoph Stellner, 2014. "The systematic risk of corporate bonds: default risk, term risk, and index choice," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(1), pages 29-61, February.
    3. Robert J. Bianchi & Michael E. Drew & Eduardo Roca & Timothy Whittaker, 2017. "Risk factors in Australian bond returns," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 57(2), pages 373-400, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hammami, Yacine & Bahri, Maha, 2016. "On the determinants of expected corporate bond returns in Tunisia," Research in International Business and Finance, Elsevier, vol. 38(C), pages 224-235.
    2. Hsin-Hui Chiu & Eva Wagner, 2020. "CEO Bonus Pay and Firm Credit Risk," International Journal of Risk and Contingency Management (IJRCM), IGI Global, vol. 9(1), pages 1-19, January.
    3. Nusrat Jahan, 2022. "Macroeconomic Determinants of Corporate Credit Spreads: Evidence from Canada," Carleton Economic Papers 22-07, Carleton University, Department of Economics.
    4. Jacob Gyntelberg & Eli M Remolona, 2006. "Securitisation in Asia and the Pacific: implications for liquidity and credit risks," BIS Quarterly Review, Bank for International Settlements, June.
    5. Günter Franke, 2013. "Known Unknowns in Verbriefungen," Schmalenbach Journal of Business Research, Springer, vol. 65(67), pages 1-34, January.
    6. Guo, Liang, 2013. "Determinants of credit spreads: The role of ambiguity and information uncertainty," The North American Journal of Economics and Finance, Elsevier, vol. 24(C), pages 279-297.
    7. repec:onb:oenbwp:y::i:152:b:1 is not listed on IDEAS
    8. Matthias Weber & John Duffy & Arthur Schram, 2018. "An Experimental Study of Bond Market Pricing," Journal of Finance, American Finance Association, vol. 73(4), pages 1857-1892, August.
    9. Yuta Inoue & Takahiro Tsuchiya, 2011. "Defaultable Bonds via HKA," Papers 1103.4541, arXiv.org.
    10. Samir Kadiric & Arthur Korus, 2019. "The effects of Brexit on credit spreads: Evidence from UK and Eurozone corporate bond markets," International Economics and Economic Policy, Springer, vol. 16(1), pages 65-102, March.
    11. Alain Monfort & Fulvio Pegoraro & Jean-Paul Renne & Guillaume Roussellet, 2021. "Affine Modeling of Credit Risk, Pricing of Credit Events, and Contagion," Management Science, INFORMS, vol. 67(6), pages 3674-3693, June.
    12. Maalaoui Chun, Olfa & Dionne, Georges & François, Pascal, 2014. "Credit spread changes within switching regimes," Journal of Banking & Finance, Elsevier, vol. 49(C), pages 41-55.
    13. Shinichi Nishioka & Naohiko Baba, 2004. "Credit Risk Taking by Japanese Investors: Is Skewness Risk Priced in Japanese Corporate Bond Market?," Bank of Japan Working Paper Series 04-E-7, Bank of Japan.
    14. Claußen, Arndt & Löhr, Sebastian & Rösch, Daniel & Scheule, Harald, 2017. "Valuation of systematic risk in the cross-section of credit default swap spreads," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 183-195.
    15. Hassan, M. Kabir & Ngene, Geoffrey M. & Yu, Jung-Suk, 2015. "Credit default swaps and sovereign debt markets," Economic Systems, Elsevier, vol. 39(2), pages 240-252.
    16. Stephanie Heck, 2022. "Corporate bond yields and returns: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(2), pages 179-201, June.
    17. Bai, Jennie & Goldstein, Robert S. & Yang, Fan, 2020. "Is the credit spread puzzle a myth?," Journal of Financial Economics, Elsevier, vol. 137(2), pages 297-319.
    18. Ingo Fender & Martin Scheicher, 2009. "The pricing of subprime mortgage risk in good times and bad: evidence from the ABX.HE indices," Applied Financial Economics, Taylor & Francis Journals, vol. 19(24), pages 1925-1945.
    19. Annaert, Jan & De Ceuster, Marc & Van Roy, Patrick & Vespro, Cristina, 2013. "What determines Euro area bank CDS spreads?," Journal of International Money and Finance, Elsevier, vol. 32(C), pages 444-461.
    20. Ingo Fender & Martin Scheicher, 2008. "The ABX: how do the markets price subprime mortgage risk?," BIS Quarterly Review, Bank for International Settlements, September.
    21. Cottrell, Simon & Yu, Xiao & Delpachitra, Sarath & Ma, Yihong, 2021. "What determines wholesale funding costs of the global systemically important banks?," Journal of Banking & Finance, Elsevier, vol. 132(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausecp:v:44:y:2005:i:1:p:30-46. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.