Author:
BOONS MARTIJN,OTTONELLO GIORGIO,VALKANOV ROSSEN
Abstract
ABSTRACTThe response of corporate bond credit spreads to three exogenous macro shocks—oil supply, investment‐specific technology, and government spending—is large, significant, and a mirror image of macroeconomic activity. This countercyclicality is driven largely by credit risk premia and translates into significant return predictability. Equity risk premia exhibit similar responses, providing external validity. Information rigidities and leverage play a key role in the transmission of the shocks. Since causal evidence linking macro shocks to credit markets is scarce and recent work highlights the real effects of credit fluctuations, our findings contribute to understanding the joint dynamics of credit markets and the macroeconomy.
Subject
Economics and Econometrics,Finance,Accounting
Cited by
1 articles.
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1. Retail bond investors and credit ratings;Journal of Accounting and Economics;2023-08