Is default event risk priced in corporate bonds?

Research output: Contribution to journalArticleScientificpeer-review

189 Citations (Scopus)

Abstract

This article provides an empirical decomposition of the default, liquidity, and tax factors that determine expected corporate bond returns. In particular, the risk premium associated with a default event is estimated. The intensity-based model is estimated using bond price data for 104 US firms and historical default rates. Significant risk premia on common intensity factors and important tax and liquidity effects are found. These components go a long way towards explaining the level of expected corporate bond returns. Adding a positive default event risk premium helps to explain the remaining error, although this premium cannot be estimated with high statistical precision.
Original languageEnglish
Pages (from-to)165-195
JournalThe Review of Financial Studies
Volume18
Issue number1
DOIs
Publication statusPublished - 1 Mar 2005
Externally publishedYes

Fingerprint Dive into the research topics of 'Is default event risk priced in corporate bonds?'. Together they form a unique fingerprint.

Cite this