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| Author: | Schaefer, S.M. Strebulaev, I.A. |
| Title: | Structural models of credit risk are useful: Evidence from hedge ratios on corporate bonds |
| Journal: | Journal of Financial Economics
2008 : OCT, VOL. 90:1, p. 1-19 |
| Index terms: | models credit risk hedging bonds |
| Freeterms: | credit spreads |
| Language: | eng |
| Abstract: | Structural models of credit risk provide poor predictions of bond prices. This paper shows among others that, despite this, they provide quite accurate predictions of the sensitivity of corporate bond returns to changes in the value of equity (as hedge ratios). The main result is that even the simplest of the structural models produces hedge ratios that are not rejected in time-series tests. |
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