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IFin Seminar, Yoshio Nozawa, HKUST - Hong Kong University of Science and Technolog - "The Global Credit Spread Puzzle"

Institute of Finance

Date: / -

Speaker: Yoshio Nozawa, HKUST - Hong Kong University of Science and Technolog

Title:     "The Global Credit Spread Puzzle"

Date:      February 12, 2019

Time:      12:25 - 13:40

Room:     Blue Room (Executive Center)

Lugano Campus

 

Abstract:

Using security-level credit spread data in Japan, the UK, Germany, France, Italy and Canada, we find robust evidence that structural models of risky debt underpredict bond yield spreads and single-name credit default swap spreads, in particular for investment-grade names. The country-level pricing errors are large, comove with the errors in the US, have a strong factor structure, and are associated with liquidity proxies and option-based uncertainty measures. The first principal component of the pricing errors negatively predicts economic growth in these six countries, underscoring the economic significance of the information missed by the model.

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