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| Author: | Elton, E. J. (et al.) |
| Title: | Explaining the rate spread on corporate bonds |
| Journal: | Journal of Finance
2001 : FEB, VOL. 56:1, p. 247-277 |
| Index terms: | Bonds Financial models Financial performance Private sector Public sector |
| Language: | eng |
| Abstract: | The purpose of this article is to explain the spread between rates on corporate and government bonds. The authors show that expected default accounts for as surprisingly small fraction of the premium in corporate rates over treasuries. While state taxes explain a substantial portion of the difference, the remaining portion of the spread is closely related to the factors that usually explain risk premiums for common stocks. Both the time series and cross-sectional test support the existence of a risk premium on corporate bonds. |
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