Predicting Credit Spreads
Authors
Published
Journal of Financial Intermediation , vol.
19, issue
4, pp.
529-63,
October (4th Quarter/Autumn)
2010
Abstract
Predictions of firm-level credit spreads based on the current spot and forward credit spreads can be
significantly improved upon by using the information contained in the shape of the credit-spread curve.
However, the current credit-spread curve is not a sufficient statistic for predicting future out-of-sample
credit spreads; predictions can be significantly improved upon by exploiting the information contained
in the shape of the riskless yield curve. In the presence of credit-spread and riskless factors, other
macroeconomic, marketwide, and firm-specific risk variables do not significantly improve predictions of
credit spreads. These results have important implications for credit-spreads modeling.
