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ON COMPUTING BOND RETURNS: THE EVALUATION OF LOW‐GRADE DEBT
Author(s) -
Alderson Michael J.,
Zivney Terry L.
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00201.x
Subject(s) - bond , portfolio , debt , stock (firearms) , bond valuation , econometrics , economics , conjecture , financial economics , monetary economics , mathematics , finance , geography , archaeology , pure mathematics
Previous research attributes disparities in the reported performance of junk bonds to differences in bond issues and time periods. The potential effect of apparently subtle differences in methodology is overlooked. We find that the methodologies used in computing performance vary significantly across representative junk bond studies. The differences in methodology can induce dramatic differences in reported performance, even with identical price data. These findings lead to the conjecture that the entire junk bond controversy might never have occurred had bond portfolio returns been computed consistent with the well‐established computations of stock returns.