RT Journal Article SR Electronic T1 Empirical Credit Risk JF The Journal of Portfolio Management FD Institutional Investor Journals SP 79 OP 92 DO 10.3905/jpm.2006.644199 VO 32 IS 4 A1 Oren Cheyette A1 Boris Postler YR 2006 UL https://pm-research.com/content/32/4/79.abstract AB An empirical model of credit risk is based here on the observed relation between issuer credit quality, measured by yield spreads, and the attribution of issuer bond returns to interest rate changes or the issuer's equity return. High-quality bond returns are largely explained by interest rate changes, while low-quality bond returns are explained primarily by the issuers' equity returns. Intermediate-credit quality bond returns have a substantial bond market-specific component that is unexplained by either interest rate changes or equity returns. The various influences on the bond-equity return relationship allow construction of an exposure model to be used for corporate bond hedging, scenario analysis, and risk forecasting.TOPICS: Credit risk management, security analysis and valuation, portfolio theory