LONG-RUN PERFORMANCE OF STOCK RETURNS FOLLOWING JUNK BOND OFFERINGS

Augusto Castillo R. ()
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Augusto Castillo R.: Escuela de Administración, Pontificia Universidad Católica de Chile

Abante, 2001, vol. 4, issue 1, 95-129

Abstract: This paper examines the long-run, post-issue stock price performance of 377 firms that issued below-investment-grade bonds during the 1976- 1989 period. Three different methodologies are used, that control for the usual sources of bias affecting long run performance studies (new listing bias, rebalancing bias, skewness bias, and non-random sampling bias). The three show very similar results. The buy and hold abnormal returns are significantly different from zero and negative starting from the fourth year after the issue, supporting to what we have called the cyclical over-optimism hypothesis which basically states that there is a cycle in financing, and that in some phases of the cycle investors will be willing to accept paper that is overpriced.

Keywords: Junk Bond Offerings; Long-Run Stock Performance (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2001
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