The Determinants of Option-Adjusted Delta Credit Spreads: A Comparative Analysis of the United States, the United Kingdom and the Euro Area

81 Pages Posted: 28 Nov 2009

See all articles by Leonardo Becchetti

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics

Andrea Carpentieri

affiliation not provided to SSRN

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Date Written: November 25, 2009

Abstract

We analyse the determinants of the variation of option-adjusted credit spreads (OASs) on a unique database that enlarges the traditional scope of analysis to more disaggregated indexes (combining industry, grade and maturity levels), new variables (volumes of sales and purchases of institutional investors) and a complete set of markets (besides the United States, the United Kingdom and the euro area). With our extended set of regressors we explain almost half of the variability of OASs and find evidence of a significant impact of institutional investors’ purchases and sales on corporate bond risk. We also find that US business cycle indicators significantly affect the variability of OASs in the United Kingdom and the euro area.

Keywords: option-adjusted credit spreads, delta, corporate bond risk, institutional investors, business cycle indicators

JEL Classification: G12, G32, E44

Suggested Citation

Becchetti, Leonardo and Carpentieri, Andrea and Hasan, Iftekhar, The Determinants of Option-Adjusted Delta Credit Spreads: A Comparative Analysis of the United States, the United Kingdom and the Euro Area (November 25, 2009). Bank of Finland Research Discussion Paper No. 34/2009, Available at SSRN: https://ssrn.com/abstract=1513269 or http://dx.doi.org/10.2139/ssrn.1513269

Leonardo Becchetti

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia, 2
I-00133 Rome
Italy

Andrea Carpentieri

affiliation not provided to SSRN ( email )

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

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