Understanding changes in corporate credit spreads

Doron Avramov*, Gergana Jostova, Alexander Philipov

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

81 Scopus citations


New evidence is reported on the empirical success of structural models in explaining changes in corporate credit risk. A parsimonious set of common factors and company-level fundamentals, inspired by structural models, was found to explain more than 54 percent (67 percent) of the variation in credit-spread changes for medium-grade (low-grade) bonds. No dominant latent factor was present in the unexplained variation. Although this set of factors had lower explanatory power among high-grade bonds, it did capture most of the systematic variation in credit-spread changes in that category. It also subsumed the explanatory power of the Fama and French factors among all grade classes.

Original languageAmerican English
Pages (from-to)90-105
Number of pages16
JournalFinancial Analysts Journal
Issue number2
StatePublished - Mar 2007
Externally publishedYes


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