Credit risk diversification: evidence from the eurobond market

Simone Varotto (s.varotto@icmacentre.ac.uk)

Bank of England working papers from Bank of England

Abstract: This paper studies the role of diversification in reducing the volatility of corporate bond returns induced by changes in credit spreads. Specifically, it looks at how credit risk can be diminished when a portfolio is diversified across countries, industry sectors, maturities, seniority types and credit ratings. The role of national industrial structures for international diversification is also investigated. The results suggest that geographical diversification is more effective in reducing portfolio risk than alternative investment strategies considered, and that industry effects are not material to this result. Finally, the paper explores the implications of these findings for credit risk capital regulation in banks.

Date: 2003-09
New Economics Papers: this item is included in nep-fmk and nep-rmg
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:199

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