Risk premium, treasury yield and structural breaks

Abstract

This study investigates the macro and micro factors that influence the risk premium on corporate bond and examines whether the bonds issued in the primary market demonstrates the structural breaks of risk premium. The relationship between the corporate bond risk premium and Treasury bond yield is evaluated with the bond characteristics and time-varying variables. Particular attention is paid to the impacts of the shocks from economic events such as the financial crisis from 2007 to 2009 on the risk premium. We propose the hypothesis of structural breaks in the risk premium and verify them using the Chow test. The transfers between the effects of “search for yield” and “flight to quality” are employed to explain the structural breaks of risk premium after the financial crisis.

Date of Award	22 Mar 2022
Original language	English
Awarding Institution	University of Bristol
Supervisor	Paula C Hill (Supervisor) & Sonny Biswas (Supervisor)