Economic links and credit spreads

Ramazan Gencay, Daniele Signori, Yi Xue (), Xiao Yu and Keyi Zhang

Journal of Banking & Finance, 2015, vol. 55, issue C, 157-169

Abstract: Counterparty risk is an important determinant of corporate credit spreads. However, there are only a few techniques available to isolate it from other factors. In this paper we describe a model of financial networks that is suitable for the construction of proxies for counterparty risk. Using data on North American supplier–customer network of public companies, we find that, for each supplier, counterparties’ leverage and option implied volatilities are significant determinants of corporate credit spreads in the period after the 2008–2009 U.S. recession. Our findings are robust after controlling for several idiosyncratic, industry, and market factors.

Keywords: NARMA; Network autoregression; Counterparty risk; Corporate credit spreads; Supply networks (search for similar items in EconPapers)
JEL-codes: C21 C31 C51 C58 G12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:55:y:2015:i:c:p:157-169

DOI: 10.1016/j.jbankfin.2015.02.007

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