Scandinavian Working Papers in Business Administration

SSE/EFI Working Paper Series in Business Administration,
Stockholm School of Economics

No 2009:7: Returns to Defaulted Corporate Bonds

Håkan Thorsell ()
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Håkan Thorsell: Dept. of Business Administration, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: I test for short term excess return in a sample of 279 defaulted US corporate bonds using multiple regression analysis. There are robust excess returns after controlling for market and liquidity risk. The expected recovery rate during 2001-2006 is estimated to be, on average, four percentage points lower the first month after default than the present value of the recovery rate after nine months.

Keywords: Bond pricing; Recovery rate

33 pages, March 23, 2009

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