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The determinants of recovery rates in the US corporate bond market

Jankowitsch, Rainer and Nagler, Florian and Subrahmanyam, Marti G. (2014) The determinants of recovery rates in the US corporate bond market. Journal of Financial Economics, 114 (1). pp. 155-177. ISSN 0304-405X

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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. (authors' abstract)

Item Type: Article
Additional Information: We gratefully acknowledge financial support from The Institute for Quantitative Research in Finance (the Q Group). Furthermore, we thank Edward Altman and the Salomon Center of New York University for providing us access to the Master Default Database. We are grateful to the referee, Paul Schultz, and the editor, William Schwert, for valuable comments and suggestions. We would also like to thank Yakov Amihud, Pierre Collin-Dufresne, Nils Friewald, Alois Geyer, Zhiguo He, Kurt Hornik, Jing-zhi Huang, Francis Longstaff, Gyöngyi Lóránth, Miriam Marra, Bruce Tuckman, Marliese Uhrig-Homburg, Oldrich Vasicek, and Ivo Welch, and participants at the 17th Annual Meeting of the Swiss Society for Financial Market Research (SGF), the 2014 Annual Meeting of the American Finance Association (AFA), the 40th Annual Meeting of the European Finance Association (EFA), the 19th Annual Meeting of the German Finance Association (DGF), and the 2012 VGSF Conference, as well as participants at the Standard & Poor's Speaker Series and the CFA Institute Speaker Series for helpful comments and suggestions.
Keywords: credit risk / recovery rate / corporate bonds / liquidity
Classification Codes: JEL G12, G33
Divisions: Departments > Finance, Accounting and Statistics > Finance, Banking and Insurance
Version of the Document: Submitted
Variance from Published Version: Minor
Depositing User: ePub Administrator
Date Deposited: 19 Dec 2014 09:51
Last Modified: 13 Oct 2015 18:16
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/65891/
URI: http://epub.wu.ac.at/id/eprint/4434

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