Issuer Quality and the Credit Cycle / Robin Greenwood, Samuel G. Hanson.

Format:

Book

Author/Creator:

Greenwood, Robin.

Contributor:

National Bureau of Economic Research.

Hanson, Samuel G.

Series:

Working Paper Series (National Bureau of Economic Research) no. w17197.

NBER working paper series no. w17197

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

We show that the credit quality of corporate debt issuers deteriorates during credit booms, and that this deterioration forecasts low excess returns to corporate bondholders. The key insight is that changes in the pricing of credit risk disproportionately affect the financing costs faced by low quality firms, so the debt issuance of low quality firms is particularly useful for forecasting bond returns. We show that a significant decline in issuer quality is a more reliable signal of credit market overheating than rapid aggregate credit growth. We use these findings to investigate the forces driving time-variation in expected corporate bond returns.

Notes:

Print version record

July 2011.