In this paper, we distinguish the risk of credit spread changes, if no default occurs, and the risk of the default event itself. We use credit spread data of many different firms and historical default rates to estimate the size of the default jump risk premium, along with the risk prices of credit spread changes. We show that, in order to fully explain the size of expected excess corporate bond returns, an economically and statistically significant default jump risk premium is necessary, on top of the risk premia that are due to the risk of credit spread changes
