| Since the outbreak of the U.S. sub-prime crisis in August 2008, the review and reconsideration of credit risk have greatly reduced new issues of corporate bonds on major markets. However, the sub-crime crisis has not blocked China's resolution and pace to develop its credit bond market. After two years of extraordinarily fast development, the ratio of the total of commercial papers (CPs), medium-term notes (MTNs) and corporate bonds to the total of bonds Ohas increased from 4.4% as at the end of 2005 to 13.8% as at the end of 2009. With the fast growth of the credit bond market, credit spread, i.e. the difference between the yield-to-maturity (YTM) of a credit bond and the benchmark YTM, is receiving growing attention from investors and the academia as the most important indicator for measuring relative value and risk-return profile of credit products.However, compared with international peers, the Chinese academia and investors'research on credit spread is relatively underdeveloped. Currently, the Chinese academia's researches in the field of credit spread mostly focus on introduction of mature models from abroad; due to reasons such as limitation of data availability, the limited number of empirical researches is mostly based on data of individual bonds, therefore their empirical conclusions lack in representativeness and implication for investment.This paper, through systematic review of foreign researches, puts forth two methods to advance the research on credit spread. In Chapters 4 and 5, the abovementioned two methods are employed to conducted empirical research on credit spreads of CPs, MTNs and corporate bonds at both index level and bond level using the time series model and panel model. During the empirical study, the respective impacts of structured models'variables, liquidity indicators, macroeconomic indicators and bond demand-supply indicators on credit spreads of various corporate bonds are considered, with empirical results from different angles compared and analyzed. The final conclusions are as follows: The structured models are still useful for China's inter-bank corporate bond market. The change in 10-year T-bond yields is one of the deciding factors of directions and percentages of movements in credit spreads of corporate bonds including CPs, MTNs, etc., indicating that currently interest rate risk is the most important source of risks for corporate bonds.The secondary market liquidity indicators have less explanatory power for credit spreads of corporate bonds, which may be associated with factors such as inactive trading, frequent fictitious trades, and the one-sided pattern on the secondary market. In contrast, the trading frequency-based liquidity indicators may be more suitable for describing the change in liquidity on the secondary market of corporate bonds; at the same time, the liquidity premium also shows strong features of variety-dependent and time-varying.The change in output indicators is significantly and negatively correlated with the change in credit spreads of various corporate bonds, i.e. when output indicators rise, credit spreads of corporate bonds tend to fall, which is consistent with theories and realities. Among the output indicators, the changes in economic value added and fixed asset investment have relative significant impacts on credit spreads of CPs and MTNs, with relatively large absolute values; other indicators, such as change in net export, have almost no impact on credit spreads of CPs and MTNs.Changes in inflation indicators are positively correlated with changes in credit spreads of various corporate bonds, i.e. when the inflation level or inflation expectation rise, credit spreads of corporate bonds tend to fall, which is contrary to the theoretical expectation. The adjustment in yields of credit products such as MTNs and CPs lags behind that of interest rate products. The major reasons for such paradox are:1) the swift shifting of the domestic bond market between bull and bear during the sampling period; and 2) the impact from the U.S. sub-prime crisis.The explanatory power of currency liquidity and bond demand indicators on the change in credit spreads of corporate bonds is relatively weak, while the explanatory power of bond supply indicators on the change in credit spreads of corporate bonds is relatively strong. One reasonable explanation for the abovementioned results is:the inter-bank bond markets never lacks in funds and the demand for bonds is always strong, while its lacks in bond supply; the review and approval procedure for bond issues is the major factor that limits bond supply.Furthermore, the change in 10-year T-bond yields, change in the term structure of the T-bond yield curve, and change in CP supply are the three most important factors that affect the change in credit spreads of CPs, while the change in liquidity of MTNs on the secondary market, change in inflation level, and change in MTN supply are the three most important factors that affect the change in credit spreads of MTNs.Last but not least, our empirical model can only explain up to 35% of the change in credit spreads of corporate bonds. The inference by Collin-Dufresne and Goldstein (2001) that the credit spread changes that cannot be explained by models come from bond demand-supply impacts may not be applicable to China's MTN and CP markets. The empirical model also indicates that the model's explanatory power increases with extension of time to maturity, the rise in financial leverage, the decrease in credit rating, and the weakening of shareholder profile. The first three correlations are consistent with empirical results abroad, and the fourth correlation is in line with domestic reality.At the end of this paper, with regard to the deficiencies that may exist herein, the directions for future researches are pointed out.
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