Times-To-Default:Life Cycle, Global and Industry Cycle Impact

Fabien Couderc and Olivier Renault
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Fabien Couderc: University of Geneva & FAME
Olivier Renault: Warwick Business School,UK

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: This paper studies times-to-default of individual firms across risk classes. Using Standard & Poor’s ratings database we investigate common drivers of default probabilities and address two shortcomings of many papers in the credit literature. First, we identify relevant determinants of default intensities using business cycle and credit market proxies in addition to financial markets indicators, and reveal the time-span of their impacts. We show that misspecifications of financial based factor models are largely corrected by non financial information. Second, we show that past economic conditions are of prime importance in explaining probability changes: current shocks and long term trends jointly determine default probabilities. Finally, we exhibit industry contagion indicators which might be helpful to capture leading and persistency patterns of the default cycle.

Keywords: censored durations; proportional hazard; business cycle; credit cycle; default determinants; default prediction (search for similar items in EconPapers)
JEL-codes: C14 C41 G20 G33 (search for similar items in EconPapers)
Date: 2005-03
New Economics Papers: this item is included in nep-bec, nep-ent, nep-fin and nep-rmg
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:fam:rpseri:rp142

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