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Extrapolation and cognitive dissonance in the market for credit risk

Extrapolation and cognitive dissonance in the market for credit risk
Extrapolation and cognitive dissonance in the market for credit risk
A measure of heterogeneous beliefs based on the high-frequency credit market information is associated with an increase in the firm's debt issuance and investments and a decrease in the cost of debt the following month. Inferring an elevated credit-market belief as investors' optimistic outlook on firms' prospects predicts future credit returns. Expectations move with the leverage ("moneyness") levels and correlate with risk factors. The existence of predictable mean reversion in credit market conditions reinforces these results.
Kita, Arben
fd98ff4d-435a-4b69-8a7f-13171bf5c1fc
Kita, Arben
fd98ff4d-435a-4b69-8a7f-13171bf5c1fc

Kita, Arben (2020) Extrapolation and cognitive dissonance in the market for credit risk

Record type: Monograph (Working Paper)

Abstract

A measure of heterogeneous beliefs based on the high-frequency credit market information is associated with an increase in the firm's debt issuance and investments and a decrease in the cost of debt the following month. Inferring an elevated credit-market belief as investors' optimistic outlook on firms' prospects predicts future credit returns. Expectations move with the leverage ("moneyness") levels and correlate with risk factors. The existence of predictable mean reversion in credit market conditions reinforces these results.

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Extrapolation and Cognitive Dissonance in the Market for Credit Risk - Version of Record
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Published date: 1 December 2020

Identifiers

Local EPrints ID: 448952
URI: http://eprints.soton.ac.uk/id/eprint/448952
PURE UUID: 717fe397-735d-4367-a8f1-a2ffcf94ae3c

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Date deposited: 11 May 2021 17:11
Last modified: 12 Dec 2021 13:49

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