Overrated Credit Risk. Three essays on credit risk in turbulent times

Credit markets have shown a dramatic development at the start of the 21st century. Increased regulatory pressure on financial institutions has spurred the development of innovative products that allow for transfer of credit risk. These developments lay at the base of the largest financial crisis since the great depression. This dissertation contains three essays on the pricing of credit risky instruments relating to several trends in credit markets leading up to the crisis. The essays cover the pricing effect of liquidity on the pricing of Credit Default Swaps, the regulatory price impact of credit ratings on corporate bonds and the decomposition of unexpected corporate bond returns into cash flow and discount rate news components. As such, this dissertation increases the understanding of credit markets leading up to and at the onset of the crisis. Moreover, it gives an in-depth discussion of the findings against the backdrop of current and future financial regulation.