Topic: The Financial Premium

Speaker: Peter Feldhütter, Professor, Copenhagen Business School

Time: 10:00am-11:30am, May 24 (Beijing Time)

Location: 4-101

Abstract:

We show that bonds issued by financial firms have higher spreads than bonds issued by industrial firms with the same rating and we denote this difference the financial premium. During the period 1987–2020 the premium was on average 43bps in the U.S. corresponding to a 31% higher spread and the premium is higher for lower ratings and in financial crises. Furthermore, the premium relates to measures of systemic risk and predicts economic activity. We derive a model that explains the empirical results: banks hold a diversified portfolio of corporate bonds (loans) and bank bonds therefore reflect more systematic risk than the individual corporate bonds.

About the speaker:

Peter Feldhütter joined the Department of Finance as Professor in 2017. He obtained his PhD from CBS and worked at London Business School before returning to CBS. His research focuses on how prices in fixed income markets are affected by illiquidity, credit risk, and supply/demand imbalances. In particular, he has published several studies on the illiquidity of the U.S. corporate bond market. He has received a number of research awards, including the Best Paper in Quantitative Investments Award at the Western Finance Association’s annual meeting, Q-Group’s Jack Treynor Prize, Wharton’s Jacobs Levy Equity Management Center for Quantitative Research’s Outstanding Paper Award, and Nykredit’s Talented Researcher Award.