|
Archive@NYU >
Stern School of Business >
Finance Working Papers >
Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27237
|
| Title: | EXPLAINING THE RATE SPREAD ON CORPORATE BONDS |
| Authors: | Elton, Edwin J.
Gruber, Martin J.
Agrawal, Deepak
Mann, Christopher |
| Issue Date: | 24-Sep-1999 |
| Series/Report no.: | FIN-99-082 |
| Abstract: | The purpose of this article is to explain the spread between spot rates
on corporate and government bonds. We find that the spread can be
explained in terms of three elements: (1) compensation for expected
default of corporate bonds (2) compensation for state taxes since
holders of corporate bonds pay state taxes while holders of government
bonds do not, and (3) compensation for the additional systematic risk in
corporate bond returns relative to government bond returns. The
systematic nature of corporate bond return is shown by relating that
part of the spread which is not due to expected default or taxes to a
set of variables which have been shown to effect risk premiums in stock
markets Empirical estimates of the size of each of these three
components are provided in the paper. We stress the tax effects because
it has been ignored in all previous studies of corporate bonds. |
| URI: | http://hdl.handle.net/2451/27237 |
| Appears in Collections: | Finance Working Papers
|
All items in Faculty Digital Archive are protected by copyright, with all rights reserved.
|
