Correlation in credit risk changes
Xiaoling Pu and
Journal of Banking & Finance, 2012, vol. 36, issue 4, 1093-1106
The current economic climate makes understanding credit risk correlation particularly important. After allowing for a comprehensive set of observable firm-specific, industry, market, and macroeconomic factors, there is an economically significant co-movement in credit default swap spreads that remains to be explained. Including a time dummy completely accounts for the remaining co-movement, confirming the existence of a systematic component that has been previously unaccounted for. Our findings suggest that it may be important to consider unobservable risk factor(s) in credit risk models.
Keywords: Correlations; Credit risk; Credit spread; Macroeconomic conditions; Industry effect; Unobservable risk factors (search for similar items in EconPapers)
JEL-codes: G28 G33 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (4) Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:4:p:1093-1106
Access Statistics for this article
Journal of Banking & Finance is currently edited by Ike Mathur
More articles in Journal of Banking & Finance from Elsevier
Series data maintained by Dana Niculescu ().