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Long-Run Performance Of Stock Returns Following Junk Bond Offerings

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  • AUGUSTO CASTILLO R.

    (Escuela de Administración, Pontificia Universidad Católica de Chile)

Abstract

This paper examines the long-run, post-issue stock price performance of 377 firms that issued below-investment-grade bonds during the 1976- 1989 period. Three different methodologies are used, that control for the usual sources of bias affecting long run performance studies (new listing bias, rebalancing bias, skewness bias, and non-random sampling bias). The three show very similar results. The buy and hold abnormal returns are significantly different from zero and negative starting from the fourth year after the issue, supporting to what we have called the cyclical over-optimism hypothesis which basically states that there is a cycle in financing, and that in some phases of the cycle investors will be willing to accept paper that is overpriced.

Suggested Citation

  • Augusto Castillo R., 2001. "Long-Run Performance Of Stock Returns Following Junk Bond Offerings," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 4(1), pages 95-129.
    • Handle: RePEc:pch:abante:v:4:y:2001:i:1:p:95-129
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    File URL: http://www.abante.cl/files/ABT/Contenidos/Vol-4-N1/4%20Castillo.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Junk Bond Offerings; Long-Run Stock Performance;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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