A Study On The Determinants Of The Credit Spreads Of Bonds In Real Estate Sector

In this paper, we use116bonds in real estate sector as data sample tostudy the determinants of credit spreads with reference to mature modelsintroduced in foreign literature. We conduct empirical study on structuralmodel variables using both cross-sectional and time series data regressionmethod.Cross-sectional regression results show that bond rating, sinking fundprovision and financial strength of local government have a significantimpact on the credit spreads of bonds in real estate sector. The explanatorypower of regression model reaches49.36%with all variables significant.We also conduct studies on firm-level variables including leverage ratio,quick ratio and collateral. The results shows no significant impact of thesevariables which indicates that bond investors pay more attention to thesupport of local government and pay less to the firm-level data. It can bemainly attributed to the lagging disclosure of financial data.The time series regression results of daily frequency data show thatrisk-free rate and changes in yield curve structure have significant impacton changes of credit spreads. Return and volatility of stock market showno significance. It can be attributed to the fact that most issuers are notlisted company. The explanatory power of the model reaches14.62%which matches the results in foreign literatures. It indicates that structuralmodel variables have certain explanatory power but we have not find themain factors affecting changes of credit spreads.Due to the lack of data points in monthly frequency data, theregression result is affected and weakened. In general, we found the impact of changes in macroeconomic variables contrast with the results weexpected, probably due to the recent financial crisis and the credit defaultevent shocks happened recently.