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We try to assess the relative importance of market and idiosyncratic factors as an explanation of movements in credit spreads. We adopt a heterogeneous panel with a multifactor error model and propose a two\u2010step estimation procedure, which yields consistent estimates of unobserved factors. The analysis is carried out with a panel of monthly redemption yields on a set of corporate bonds for a time span of 3\u2009years. Our results suggest that the euro corporate market is driven by observable and unobservable factors. The unobservable factors are identified through a consistent estimation of individual and common observable effects. The empirical results suggest that an unobserved common factor has a significant role in explaining the systematic changes in credit spreads. However, in contrast to evidence regarding US credit spread changes, it cannot be identified as a market factor. Copyright \u00a9 2011 John Wiley &amp; Sons, Ltd.<\/jats:p>","DOI":"10.1002\/jae.1280","type":"journal-article","created":{"date-parts":[[2011,12,5]],"date-time":"2011-12-05T07:55:58Z","timestamp":1323071758000},"page":"372-391","source":"Crossref","is-referenced-by-count":13,"title":["EURO CORPORATE BOND RISK FACTORS"],"prefix":"10.1002","volume":"28","author":[{"given":"Carolina","family":"Castagnetti","sequence":"first","affiliation":[{"name":"Dipartimento di Economia Politica e Metodi Quantitativi  Pavia Italy"}],"role":[{"role":"author","vocabulary":"crossref"}]},{"given":"Eduardo","family":"Rossi","sequence":"additional","affiliation":[{"name":"Dipartimento di Economia Politica e Metodi Quantitativi  Pavia Italy"}],"role":[{"role":"author","vocabulary":"crossref"}]}],"member":"311","published-online":{"date-parts":[[2011,12,5]]},"reference":[{"key":"e_1_2_12_2_1","unstructured":"AnnaertJ De CeusterMJK.2000.Modelling European credit spreads. 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