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The determinants of recovery rates in the US corporate bond market

Author

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  • Jankowitsch, Rainer
  • Nagler, Florian
  • Subrahmanyam, Marti G.

Abstract

We examine recovery rates of defaulted bonds in the US corporate bond market, based on a complete set of traded prices and volumes. A study of the trading microstructure around various types of default events is provided. We document temporary price pressure with high trading volumes on the default day and the following 30 days, and low trading activity thereafter. Based on this analysis, we determine market-based recovery rates and quantify various liquidity measures. We study the relation between the recovery rates and these measures, considering additionally a comprehensive set of bond characteristics, firm fundamentals, and macroeconomic variables.

Suggested Citation

  • Jankowitsch, Rainer & Nagler, Florian & Subrahmanyam, Marti G., 2014. "The determinants of recovery rates in the US corporate bond market," Journal of Financial Economics, Elsevier, vol. 114(1), pages 155-177.
    • Handle: RePEc:eee:jfinec:v:114:y:2014:i:1:p:155-177
    DOI: 10.1016/j.jfineco.2014.06.001
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    More about this item

    Keywords

    Credit risk; Recovery rate; Corporate bonds; Liquidity;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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