Cyclical Changes in Firm Volatility

We characterize trends and cycles in the volatility of U.S. firms using a measure that we argue more cleanly captures firm‐specific volatility in sales and earnings growth than standard measures do. While earlier literature has emphasized a trend increase in the volatility of publicly traded firms, we find that a typical publicly traded firm has become more stable. We find that the negative association between firm‐specific volatility and the business cycle is weaker than earlier research based on dispersion measures suggests. We find that during the Great Recession of 2007–2009, firm‐specific volatility increased moderately but never substantially exceeded its sample mean. Our results are inconsistent with the hypothesis that firm‐specific volatility is an important driver of the business cycle, as it theoretically could be through an effect of default risk on credit spreads.     

Market conditions,default risk and credit spreads

This study empirically examines the impact of the interaction between market and default risk on corporate credit spreads. Using credit default swap (CDS) spreads, we find that average credit spreads decrease in GDP growth rate, but increase in GDP growth volatility and jump risk in the equity market. At the market level, investor sentiment is the most important determinant of credit spreads. At the firm level, credit spreads generally rise with cash flow volatility and beta, with the effect of cash flow beta varying with market conditions. We identify implied volatility as the most significant determinant of default risk among firm-level characteristics. Overall, a major portion of individual credit spreads is accounted for by firm-level determinants of default risk, while macroeconomic variables are directly responsible for a lesser portion.     

Trade Credit Risk Management: The Role of Executive Risk‐Taking Incentives

In this study we investigate how executive equity incentives affect companies’ risk‐taking behavior in relationships with their customers. We hypothesize and find that executive risk‐taking incentives provided by options are positively related to the degree of trade credit riskiness measured both as the amount of total trade credit a firm extends to all its customers and as the amount of trade credit a firm extends to customers with a high probability of default. We also find that the measures of trade credit riskiness are positively related to the firm's future stock return volatility, suggesting that the customer default risk inherent in customer‐supplier trade credit relationships represents an important economic source of the overall supplier‐firm riskiness. The findings of the study provide insights into why firms facing financial difficulties are not denied trade credit.     

Inflation Risk in Corporate Bonds

We argue that corporate bond yields reflect fears of debt deflation. When debt is nominal, unexpectedly low inflation increases real liabilities and default risk. In a real business cycle model with optimal but infrequent capital structure choice, more uncertain or procyclical inflation leads to quantitatively important increases in corporate log yields in excess of default‐free log yields. A panel of credit spread indexes from six developed countries shows that credit spreads rise by 14 basis points if inflation volatility or the inflation‐stock correlation increases by one standard deviation.     

Evaluating the sovereign and household credit risk in Singapore: A contingent claims approach

This study evaluates the credit risk of the household and government (sovereign) sectors in Singapore using the contingent claims approach (CCA). The CCA model estimates the default probability of both sectors based on the market value of the assets and liabilities of the sectors. Compared to the traditional credit rating system, this model is able to provide numerical estimates of the exposures and default probabilities. We find that from the year 2000 to 2013, variations in the credit risk measures correspond to the economic growth of Singapore. In addition, we suggest that the main factor affecting the credit risks in the government and household sectors in Singapore is the volatility of the assets held by both sectors, given that the asset-to-distress barrier ratios are relatively stable over the past 14 years for both sectors.     

中国信用价差与经济周期关联性研究——基于马尔科夫区制转换模型

通过构建马尔科夫区制转换模型,研究2014年中国出现的实质性债券违约以来信用价差特征。研究发现:信用债利差明显存在两个区制,2014年上半年和2016年4月后,信用价差增加,波动加大,与其余时段呈现为另一区制,说明信用债打破刚性兑付以来,中国债券市场进入一种新的风险溢价模式。同时,信用价差与利率期限结构及股指相关性显示,信用价差变化与经济周期波动密切相关,中国信用债市场逐渐能够反映经济周期信用风险溢价。     

Political uncertainty and a firm's credit risk: Evidence from the international CDS market

Using a large sample of firms with single-name credit default swap (CDS) contracts in 30 countries, we document the evidence that political uncertainty, proxied by national election dummy, is positively related to firm-level credit risk. Specifically, this positive relation is more pronounced for the firms that have no political connection or poor international diversification, and in the countries with higher political uncertainty and lower investor protections. Further, by using a difference-in-differences approach, we find evidence to support idiosyncratic volatility and debt rollover channels through which political uncertainty affects the credit risk of individual firm.     

Empirical credit cycles and capital buffer formation

We model 1927–1997 US business failure rates using an unobserved components time series model. Clear evidence is found of cyclical behavior in default rates. We also detect significant longer term movements in default rates and default correlations. In a multi-year backtest experiment we show that accommodation of default rate dynamics has important consequences for credit risk capitalization requirements. Static or myopic variants of credit portfolio models miss significant periods of credit risk accumulation. Empirically congruent dynamic models by contrast provide more timely warning signals of credit risk build-up. In this way they may mitigate some of the pro-cyclicality concerns.     

Corporate bond default risk: A 150-year perspective

We study corporate bond default rates using an extensive new data set spanning the 1866-2008 period. We find that the corporate bond market has repeatedly suffered clustered default events much worse than those experienced during the Great Depression. For example, during the railroad crisis of 1873-1875, total defaults amounted to 36% of the par value of the entire corporate bond market. Using a regime-switching model, we examine the extent to which default rates can be forecast by financial and macroeconomic variables. We find that stock returns, stock return volatility, and changes in GDP are strong predictors of default rates. Surprisingly, however, credit spreads are not. Over the long term, credit spreads are roughly twice as large as default losses, resulting in an average credit risk premium of about 80 basis points. We also find that credit spreads do not adjust in response to realized default rates.     

Default risk premium and asset prices

We estimate a standard structural model of credit risk to draw insights about the premium demanded by investors for bearing default risk, using data on credit default swaps and market capitalization. We pin down the daily market value of assets for a set of non-financial firms and uncover cross-sectional heterogeneity in terms of the magnitude and time variation of the premium. By exploring the link between asset and default risk premia, we show that this heterogeneity closely depends on the relationship between the firm-specific market value of the assets and the business cycle.     

手机分期消费贷款信用风险研究——基于RF-Logistic模型的实证分析

识别手机分期消费贷款违约因子是防范手机消费贷款业务信用风险的关键所在。为此,基于融合随机森林（RF）和逻辑回归（Logistics）两阶段模型,通过数据挖掘揭示风险特征重要性含义,并结合经济计量方法诠释异质性客户信用违约的基准逻辑。结果表明：入网时长、终端个数、客户月流量、终端时长是影响手机分期消费贷款客户信用风险的重要性特征变量,且边际影响分别为-0.039%、3.18%、-0.01%、-1.06%,模型泛化能力强,准确率达到74%。所以,要完善手机分期消费贷款信用风险管理应从交叉数据获取、社交网络、兴趣热点和消费习惯等方面着手。     

News sentiment and sovereign credit risk

We explore the impact of media content on sovereign credit risk. Our measure of media tone is extracted from the Thomson Reuters News Analytics database. As a proxy for sovereign credit risk we consider credit default swap (CDS) spreads, which are decomposed into their risk premium and default risk components. We find that media tone explains and predicts CDS returns and is a mixture of noise and information. Its effect on risk premium induces a temporary change in investors’ appetite for credit risk exposure, whereas its impact on the default component leads to reassessments of the fundamentals of sovereign economies.     

Theory and evidence on the dynamic interactions between sovereign credit default swaps and currency options

Using sovereign CDS spreads and currency option data for Mexico and Brazil, we document that CDS spreads covary with both the currency option implied volatility and the slope of the implied volatility curve in moneyness. We propose a joint valuation framework, in which currency return variance and sovereign default intensity follow a bivariate diffusion with contemporaneous correlation. Estimation shows that default intensity is much more persistent than currency return variance. The market price estimates on the two risk factors also explain the well-documented evidence that historical average default probabilities are lower than those implied from credit spreads.     

A portfolio view of consumer credit

To compute risk-adjusted returns and gauge the volatility of their portfolios, lenders need to know the covariances of their loans’ returns with aggregate returns. We use unique credit bureau data to measure individuals’ ‘covariance risk’, i.e., the covariance of their default risk with aggregate consumer default rates, and more generally to analyze the distribution of credit, including the effects of credit scores. We find significant heterogeneity in covariance risk across consumers. Also, the amount of credit they obtain significantly increases with their credit scores, and decreases with their covariance risk (especially revolving credit), though the effect of covariance risk is smaller.     

Business credit information sharing and default risk of private firms

We investigate whether and how business credit information sharing helps to better assess the default risk of private firms. Private firms represent an ideal testing ground because they are smaller, more informationally opaque, riskier, and more dependent on trade credit and bank loans than public firms. Based on a representative panel dataset that comprises private firms from all major industries, we find that business credit information sharing substantially improves the quality of default predictions. The improvement is stronger for older firms and those with limited liability, and depends on the sharing of firms’ payment history and the number of firms covered by the local credit bureau office. The value of soft business credit information is higher the smaller the firms and the lower their distance from the local credit bureau office. Furthermore, in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates. Our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength.     

Idiosyncratic risk and debt maturity dispersion

We investigate the relation between idiosyncratic asset risk and debt maturity dispersion. Idiosyncratic asset volatility represents significant risk, which can impede the ability to obtain or maintain external debt financing necessary for business operations, and is difficult to control given its unpredictable nature. We find that this risk is managed through the maturity structure of debt: firms with higher idiosyncratic asset volatility also have more dispersed maturity structures. Consistent with active management of rollover risk, this relation is weaker for younger firms and stronger for firms without significant credit lines.     

An intensity model for credit risk with switching Lévy processes

We develop a switching regime version of the intensity model for credit risk pricing. The default event is specified by a Poisson process whose intensity is modeled by a switching Lévy process. This model presents several interesting features. First, as Lévy processes encompass numerous jump processes, our model can duplicate the sudden jumps observed in credit spreads. Also, due to the presence of jumps, probabilities do not vanish at very short maturities, contrary to models based on Brownian dynamics. Furthermore, as the parameters of the Lévy process are modulated by a hidden Markov chain, our approach is well suited to model changes of volatility trends in credit spreads, related to modifications of unobservable economic factors.     

An Empirical Comparison of Credit Spreads between the Bond Market and the Credit Default Swap Market

This paper compares the pricing of credit risk in the bond market and the fast-growing credit default swap (CDS) market. The cointegration test confirms that the theoretical parity relationship between the two credit spreads holds as a long-run equilibrium condition. Nevertheless, substantial deviation from the parity can arise in the short run. The panel data study and the VECM analysis both suggest that the deviation is largely due to the higher responsiveness of CDS premia to changes in credit conditions. Moreover, it exhibits a certain degree of persistence in that only 10% of price discrepancies can be removed within a business day.     

Credit default swaps and the market for sovereign debt

In this paper, we analyze the determinants and effects of credit default swap (CDS) trading initiation in the sovereign bond market. CDS trading initiation is associated with a 30–150 basis point reduction in sovereign bond yields, with greater yield reductions accruing to higher default risk economies. For countries with high default risk, rated B or lower by Standard and Poor’s, CDS initiation is also associated with significant price efficiency benefits in the underlying market. CDS trading initiation is more likely following increases in local equity index volatility, index spreads for regional and global CDS markets, or depreciation of the local currency relative to the US dollar, and decreases in a country’s ability to service foreign debt. Our results are robust to selection bias controls based on these factors.     

Counterparty Risk for Credit Default Swaps: Markov Chain Interacting Intensities Model with Stochastic Intensity

We analyze the counterparty risk for credit default swaps using the Markov chain model of portfolio credit risk of multiple obligors with interacting default intensity processes. The default correlation between the protection seller and underlying entity is modeled by an increment in default intensity upon the occurrence of an external shock event. The arrival of the shock event is a Cox process whose stochastic intensity is assumed to follow an affine diffusion process with jumps. We examine how the correlated default risks between the protection seller and the underlying entity may affect the credit default premium in a credit default swap.