IDEAS home Printed from https://ideas.repec.org/a/ush/jaessh/v3y2008i4(6)_winter200842.html
   My bibliography  Save this article

Rating And Other Factors Explaining The Corporate Credit Spread: Empirical Evidence From Tunisian Bond Market

Author

Listed:
  • Chebbi TAREK

Abstract

This is an examination of the determinants of corporate bond credit spreads using both primary and secondary market spreads for Tunisian corporate bonds. The factors which I use as explanatory variables in our estimations can be divided into three categories: market variables, issue and issuer characteristics. To some extent, these three categories correspond to the different types of risk, namely interest rate risk, liquidity risk and credit risk. Using OLS regressions, our empirical results indicate that primary market spreads are sensible to issue characteristics such as rating. Also, spreads observed in secondary market are sensible to market variables namely Exchange Index and Slope, characteristics issuers and issues (Rating and Time to maturity). This is the first study to indicate that the explanatory power of factors depends of spreads modelled. Hence, corporate credit spreads are driven by both default and interest rate risk for the secondary market and only by default risk for the primary market.

Suggested Citation

  • Chebbi TAREK, 2008. "Rating And Other Factors Explaining The Corporate Credit Spread: Empirical Evidence From Tunisian Bond Market," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(4(6)_Wint).
    • Handle: RePEc:ush:jaessh:v:3:y:2008:i:4(6)_winter2008:42
    as

    Download full text from publisher

    File URL: http://www.jaes.reprograph.ro/articles/winter2008/RatingArticle12.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jean Helwege & Christopher M. Turner, 1999. "The Slope of the Credit Yield Curve for Speculative‐Grade Issuers," Journal of Finance, American Finance Association, vol. 54(5), pages 1869-1884, October.
    2. Lawrence Fisher, 1959. "Determinants of Risk Premiums on Corporate Bonds," Journal of Political Economy, University of Chicago Press, vol. 67(3), pages 217-217.
    3. Zhiwei Zhang, 2002. "Corporate Bond Spreads and the Business Cycle," Staff Working Papers 02-15, Bank of Canada.
    4. Edwin J. Elton & Martin J. Gruber & Deepak Agrawal & Christopher Mann, 2001. "Explaining the Rate Spread on Corporate Bonds," Journal of Finance, American Finance Association, vol. 56(1), pages 247-277, February.
    5. Delianedis, Gordon & Geske, Robert, 2001. "The Components of Corporate Credit Spreads: Default, Recovery, Tax, Jumps, Liquidity, and Market Factors," University of California at Los Angeles, Anderson Graduate School of Management qt32x284q3, Anderson Graduate School of Management, UCLA.
    6. Sarig, Oded & Warga, Arthur, 1989. "Bond Price Data and Bond Market Liquidity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(3), pages 367-378, September.
    7. Jan Ericsson & Olivier Renault, 2006. "Liquidity and Credit Risk," Journal of Finance, American Finance Association, vol. 61(5), pages 2219-2250, October.
    8. Brown, Alessio J. G. & Žarnić, Žiga, 2003. "Explaining the increased German credit spread: The role of supply factors," Kiel Advanced Studies Working Papers 412, Kiel Institute for the World Economy (IfW Kiel).
    9. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
    10. Robert A. Jarrow & David Lando & Stuart M. Turnbull, 2008. "A Markov Model for the Term Structure of Credit Risk Spreads," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 18, pages 411-453, World Scientific Publishing Co. Pte. Ltd..
    11. Longstaff, Francis A & Schwartz, Eduardo S, 1995. "A Simple Approach to Valuing Risky Fixed and Floating Rate Debt," Journal of Finance, American Finance Association, vol. 50(3), pages 789-819, July.
    12. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    13. Warga, Arthur, 1992. "Bond Returns, Liquidity, and Missing Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 27(4), pages 605-617, December.
    14. Mascia Bedendo & Lara Cathcart & Lina El‐Jahel, 2007. "The Slope Of The Term Structure Of Credit Spreads: An Empirical Investigation," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(2), pages 237-257, June.
    15. Klaus Düllmann & Marliese Uhrig‐Homburg & Marc Windfuhr, 2000. "Risk structure of interest rates: an empirical analysis for Deutschemark‐denominated bonds," European Financial Management, European Financial Management Association, vol. 6(3), pages 367-388, September.
    16. repec:bla:jfinan:v:53:y:1998:i:6:p:2225-2241 is not listed on IDEAS
    17. Yu, Fan, 2005. "Accounting transparency and the term structure of credit spreads," Journal of Financial Economics, Elsevier, vol. 75(1), pages 53-84, January.
    18. Batten, Jonathan A. & Hogan, Warren P., 2003. "Time variation in the credit spreads on Australian Eurobonds," Pacific-Basin Finance Journal, Elsevier, vol. 11(1), pages 81-99, January.
    Full references (including those not matched with items on IDEAS)

    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. Brown, Alessio J. G. & Žarnić, Žiga, 2003. "Explaining the increased German credit spread: The role of supply factors," Kiel Advanced Studies Working Papers 412, Kiel Institute for the World Economy (IfW Kiel).
    2. 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.
    3. Wahyudi, Imam & Robbi, Abdu, 2009. "Exploring Determinant Factors of Bond Trading with Inventory Management Theory (Case Study of Indonesian Capital Market, January – March 2009)," MPRA Paper 59883, University Library of Munich, Germany, revised 16 Jul 2010.
    4. Nejadmalayeri, Ali & Mathur, Ike & Singh, Manohar, 2013. "Product market advertising and corporate bonds," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 78-94.
    5. repec:wyi:journl:002109 is not listed on IDEAS
    6. Han-Hsing Lee, 2020. "Distress risk, product market competition, and corporate bond yield spreads," Review of Quantitative Finance and Accounting, Springer, vol. 55(3), pages 1093-1135, October.
    7. Menz, Klaus-Michael, 2010. "Market discipline and the evaluation of Euro financial bonds--An empirical analysis," Research in International Business and Finance, Elsevier, vol. 24(3), pages 315-328, September.
    8. Maclachlan, Iain C, 2007. "An empirical study of corporate bond pricing with unobserved capital structure dynamics," MPRA Paper 28416, University Library of Munich, Germany.
    9. Ericsson, Jan & Reneby, Joel, 2003. "Valuing Corporate Liabilities," SIFR Research Report Series 15, Institute for Financial Research.
    10. Brian BARNARD, 2017. "Rating Migration and Bond Valuation: Decomposing Rating Migration Matrices from Market Data via Default Probability Term Structures," Expert Journal of Finance, Sprint Investify, vol. 5(1), pages 49-72.
    11. Song Han & Hao Zhou, 2016. "Effects of Liquidity on the Non-Default Component of Corporate Yield Spreads: Evidence from Intraday Transactions Data," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 6(03), pages 1-49, September.
    12. Brian BARNARD, 2017. "Rating Migration and Bond Valuation: Decomposing Rating Migration Matrices from Market Data via Default Probability Term Structures," Expert Journal of Finance, Sprint Investify, vol. 5, pages 49-72.
    13. Ramaprasad Bhar, 2010. "Stochastic Filtering with Applications in Finance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7736, August.
    14. Ramaprasad Bhar & Nedim Handzic, 2011. "A Multifactor Model of Credit Spreads," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 18(1), pages 105-127, March.
    15. Heidorn, Thomas & Schlamann, Sara, 2022. "The dynamics of rating based credit benchmark curves," Frankfurt School - Working Paper Series 231, Frankfurt School of Finance and Management.
    16. Ephraim Clark & Selima Baccar, 2018. "Modelling credit spreads with time volatility, skewness, and kurtosis," Annals of Operations Research, Springer, vol. 262(2), pages 431-461, March.
    17. Chang, Charles & Fuh, Cheng-Der & Kao, Chu-Lan Michael, 2017. "Reading between the ratings: Modeling residual credit risk and yield overlap," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 114-135.
    18. Mr. Marcel Peter & Martín Grandes, 2005. "How Important Is Sovereign Risk in Determining Corporate Default Premia? The Case of South Africa," IMF Working Papers 2005/217, International Monetary Fund.
    19. Nejadmalayeri, Ali & Nishikawa, Takeshi & Rao, Ramesh P., 2013. "Sarbanes-Oxley Act and corporate credit spreads," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2991-3006.
    20. Hong-Ming Yin & Jin Liang & Yuan Wu, 2018. "On a New Corporate Bond Pricing Model with Potential Credit Rating Change and Stochastic Interest Rate," JRFM, MDPI, vol. 11(4), pages 1-12, December.
    21. Edward J. Elton & Martin J. Gruber & Deepak Agrawal & Christopher Mann, 1999. "Explaining the Rate Spread on Corporate Bonds," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-082, New York University, Leonard N. Stern School of Business-.

    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:ush:jaessh:v:3:y:2008:i:4(6)_winter2008:42. 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: Laura Stefanescu (email available below). General contact details of provider: https://edirc.repec.org/data/fmuspro.html .

    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.