Market Dynamics and Investment Performance of Distressed and Defaulted Debt Securities

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Abstract
The market for investing in distressed and defaulted debt is continuing to receive a great deal of attention despite the shrinkage in the supply of new securities in the last few years and the recent (1997-98) poor return performance to investors. This is primarily due to the expected growth in the supply of new distressed and defaulted public and private debt paper, the perception that prices are now at attractive levels and the documented relatively low correlation of returns with the more traditional debt and equity markets. This article reviews some of the important attributes of this unique investment vehicle and updates our analysis of the risk and return performance of defaulted debt.

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