Determinants of Corporate Credit Spreads

This thesis examines determinants of the levels and movements in corporate bond yields in excess of comparable maturity Treasury yields. Three empirical techniques are used: a random walk, first differenced, and fixed effects models. We find that credit spreads are typically persistent over long periods of time, the effective federal funds rate moves inversely with credit spreads, and that crisis-era spreads are poorly described by random walks. These results both confirm and contradict prior findings, and have high explanatory power, capturing 67-87% of credit spread variation.