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An Empirical Test of Investment Restrictions and Efficiency in the High‐Yield Debt Market
Author(s) -
Hawley Delvin D.,
Walker M. Mark
Publication year - 1992
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.1992.tb01318.x
Subject(s) - investment (military) , yield (engineering) , debt , monetary economics , economics , bond , test (biology) , financial economics , business , finance , law , metallurgy , paleontology , biology , materials science , politics , political science
The results of this study indicate that bondholders earn significant abnormal returns following upgrades from speculative to investment grade. In contrast, major downgrades and upgrades from investment grade to highquality have no effect on bondholder wealth. These results support the conclusion that investment constraints for institutional investors inhibit the price of speculativegrade bonds from rising to reflect decreases in default risk until the rating change actually occurs.