On the importance of systematic risk factors in explaining the cross-section of corporate bond yield spreads

Credit Spreads and Regime Shifts

“…We also find that the one-day lagged change in the VIX has a positive and highly significant effect on changes in the spread of all bond portfolios except for the high-yield bonds with medium portfolios (for which the relation is significant at the 10% level). These findings are similar to prior studies that document that stock market variables such as return on the S&P 500 and the CBOE VIX have explanatory power in regressions of credit spread changes (Elton et al [2001], King and Khang [2005], Collin-Dufresne et al [2001], and others).…”

“…Following Elton et al's [2001] findings, King and Khang [2005] use a sample of investment-grade corporate bonds to study the impact of stock market factors in explaining the crosssectional variation in credit spreads. They find that once the default-related variables are controlled for, the sensitivities to aggregate equity market risks have explanatory power that is limited.…”

Corporate social responsibility and Eurozone corporate bonds: The moderating role of country sustainability

“…We expect maturity to be positively related to z-spreads. Holding all other factors constant, the higher duration is, the later interest and principal payments have to be made, which increases risk and should translate into higher spreads (see King and Khang, 2005). The liquidity risk for asset and corporate bond pricing has been investigated by several studies recently, including Acharya and Pedersen (2005), de Jong and Driessen (2006), and Lin et al (2011).…”

Using the credit spread as an option-risk factor: Size and value effects in CAPM

“…Although Elton et al (2001) found that almost 85% of the default spread can be explained as compensation for bearing systematic risk and was unrelated to default, King and Khang (2005) claim that Elton et al's findings might be biased as they did not control for all the relevant variables. King and Khang (2005, p. 3144) find that the effect of firm leverage on credit spreads is larger for lower-rated bonds and that the bond-yield spreads reflect these important issuer characteristics, both across and within rating categories.…”