Are Junk Bonds Junk?
| Autor: | Li-Sheng Chang, 張力升 |
|---|---|
| Rok vydání: | 2010 |
| Druh dokumentu: | 學位論文 ; thesis |
| Popis: | 98 This paper employs Sharpe ratio and information ratio to investigate if junk bonds command higher excess returns than premium bonds due to the “synergy negative convexity” after the subprime crisis. Our empirical results reveal that: (1) Corporations with junk bond ratings have higher excess returns in equity values, as proxies for excess returns in bond prices, than those with premium bond ratings even in different sectors, (2) Downgraded corporations have excess returns in equity values, as proxies for excess returns in bond prices, than when upgraded, regardless they obtain premium bond or junk bond ratings, and (3) Junk bond indices have higher excess returns than corresponding premium bond indices. The implications of our findings are that the misperception about riskiness of junk bonds before the subprime crisis and the “synergy systematic risk” results in under-demanded and underpriced junk bonds, which lead to higher excess returns. Finally, the higher excess returns obtained by corporations with junk bond ratings, the downgraded corporations, or all junk bond indices in (3), are attributed to the ignorance of credit ratings agencies in any economic states and risk components even before the subprime crisis. |
| Databáze: | Networked Digital Library of Theses & Dissertations |
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