Common Failings: How Corporate Defaults are Correlated
نویسندگان
چکیده
Common Failings: How Corporate Defaults are Correlated We develop, and apply to data on U.S. corporations from 1987-2000, tests of the standard doubly-stochastic assumption under which firms’ default times are correlated only as implied by the correlation of factors determining their default intensities. This assumption is violated in the presence of contagion or “frailty” (unobservable covariates for default that are correlated across firms). Our tests do not depend on the time-series properties of default intensities. The data do not support the joint hypothesis of well specified default intensities and the doubly-stochastic assumption, although we provide evidence that this may be due to mis-specification of the default intensities, which do not include macroeconomic default-prediction covariates. Despite this rejection, there is no evidence of significant default clustering in excess of that implied by the doubly-stochastic model and correlation of observable firm-specific default covariates. How corporate defaults are correlated 1
منابع مشابه
Common Failings: How Corporate Defaults are Correlated - September 2005
Common Failings: How Corporate Defaults are Correlated We develop, and apply to data on U.S. corporations from 1979-2004, tests of the standard doubly-stochastic assumption under which firms’ default times are correlated only as implied by the correlation of factors determining their default intensities. This assumption is violated in the presence of contagion or “frailty” (unobservable explana...
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