The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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What Drives the Cross‐Section of Credit Spreads?: A Variance Decomposition Approach
Published: 05/23/2017 | DOI: 10.1111/jofi.12524
YOSHIO NOZAWA
I decompose the variation of credit spreads for corporate bonds into changing expected returns and changing expectation of credit losses. Using a log‐linearized pricing identity and a vector autoregression applied to microlevel data from 1973 to 2011, I find that expected returns contribute to the cross‐sectional variance of credit spreads nearly as much as expected credit loss does. However, most of the time‐series variation in credit spreads for the market portfolio corresponds to risk premiums.
Liquidity Supply in the Corporate Bond Market
Published: 11/10/2020 | DOI: 10.1111/jofi.12991
JONATHAN GOLDBERG, YOSHIO NOZAWA
This paper examines dealer inventory capacity, or liquidity supply, as a driver of liquidity and expected returns in the corporate bond market. We identify shocks to aggregate liquidity supply using data on corporate bond yields and dealer positions. Liquidity supply shocks lead to persistent changes in market liquidity, are correlated with proxies for dealer financial constraints, and have significant explanatory power for cross‐sectional and time‐series variation in expected returns, beyond standard risk factors. Our findings point to liquidity supply by financially constrained intermediaries as a main driver of market liquidity and asset prices.