An Empirical Test of Investment Restrictions and Efficiency in the High-Yield Debt Market

Delvin D Hawley and M Mark Walker

The Financial Review, 1992, vol. 27, issue 2, 273-87

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 high-quality have no effect on bondholder wealth. These results support the conclusion that investment constraints for institutional investors inhibit the price of speculative-grade bonds from rising to reflect decreases in default risk until the rating change actually occurs. Copyright 1992 by MIT Press.

Date: 1992
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