An Empirical Test of Investment Restrictions and Efficiency in the High‐Yield Debt Market
- 1 May 1992
- journal article
- Published by Wiley in The Financial Review
- Vol. 27 (2) , 273-287
- https://doi.org/10.1111/j.1540-6288.1992.tb01318.x
Abstract
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.Keywords
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