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Option†Adjusted Delta Credit Spreads: a Cross†Country Analysis

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  • Leonardo Becchetti
  • Andrea Carpentieri
  • Iftekhar Hasan

Abstract

This study analyses the determinants of the variation in option†adjusted credit spreads (OASs) using a unique database and enlarges the traditional analysis to include disaggregated indexes, new variables, and a complete set of markets (USA, UK, and the Eurozone). An extended set of regressors explains almost half the variability of OASs in the three markets. We find that institutional trading activity significantly affects corporate bond spreads, signalling either variation in perceptions of risk or the existence of an indirect measure of liquidity. We also find that US business cycle indicators significantly affect the variability of OASs in the UK and the Eurozone. Finally, we find evidence that stock returns have more influence on high†yield bonds in the Eurozone than in the USA.

Suggested Citation

  • Leonardo Becchetti & Andrea Carpentieri & Iftekhar Hasan, 2012. "Option†Adjusted Delta Credit Spreads: a Cross†Country Analysis," European Financial Management, European Financial Management Association, vol. 18(2), pages 183-217, March.
    • Handle: RePEc:bla:eufman:v:18:y:2012:i:2:p:183-217
    DOI: 10.1111/j.1468-036X.2009.00527.x
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