Ma, Christopher K Rao, Ramesh P Peterson, Richard L
Abstract
This paper investigates the resiliency of the new-issue high-yield bond market by examining the changes in implied default rates of such bonds before and after the largest high-yield bond default, i.e., the LTV bankruptcy. Specifically, the paper compares implied default probabilities of high-yield bonds during the post-LTB period calculated from actual new-issue yields with instrumental default probabilities calculated on the assumption that the default had not occurred. A comparison of these probabilities reveals that the market's perception of default on the high-risk segment of the bond market increased significantly after the LTV bankruptcy. However, the effect was transitory, lasting only six months. Thus, the market was resilient to a major default. Copyright 1989 by American Finance Association.
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Article provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 44 (1989) Issue (Month): 4 (September) Pages: 1085-97 Download reference. The following formats are available: HTML,
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