earticle

영어

The main results of this paper are summarized as follows. First, we propose a new extended Fama-French model based on yield curve information. To the best of our knowledge, this is the first paper that proposes the corporate bond pricing model that considers simultaneously interest rate, credit, and illiquidity factors together with three main characteristics of yield curve (level, steepness and concavity) by extending Fama-French 2 factor model. Second, we show the importance of “net credit risk factor” in the determination of yield spreads of corporate bonds and the underestimation problem of illiquidity premium (over-estimation of credit premium) that has been overlooked by current literature. Third, we find that each factor of bond yields responds differently according to the source of financial shocks by examining the impact (performance decomposition) of each factor on bond yield spreads. Fourth, we find that new extracted variables are important risk factors in explaining yield spreads of corporate bonds. Fifth, we find that there exists a non-linear relation between bond yields and betas. Sixth, we find that the relationship between credit and illiquidity is different depending on the economic situations and it is essential and crucial to measure and manage risk separately by the risk factors that we discover in the paper. Lastly, we find that liquidity black holes arise in the beginning of the financial crisis when uncertainty prevails and show that financial markets became unstable suddenly since self-stabilizing mechanism of bond markets did not work appropriately due to the liquidity preference of investors in the global financial crisis.