High-Yield Bond Default and Call Risks

Cynthia G. McDonald; Linda M. Van De Gucht

doi:10.1162/003465399558346

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High-Yield Bond Default and Call Risks

Cynthia G. McDonald¹; Linda M. Van De Gucht²

¹ University of Missouri · ² Catholic University of America

The Review of Economics and Statistics 1999

This paper empirically investigates high-yield bond default and call behavior using a competing risks hazard model that simultaneously estimates the impact of bond age, issue-specific characteristics and business conditions on both events. Results reveal nonmonotonic aging effects: default rates increase and then drop while call rates first increase and then level off. Rating and coupon size affect default risk, while maturity and issue size impact only call rates. Defaults are more likely when economic conditions have worsened and no improvement is anticipated. Calls are more likely when interest rates have decreased but are expected to rise.

DOI: 10.1162/003465399558346
Volume: 81 (3)
Pages: 409-419
Language: en
Export: BibTeX
Sources: openalex crossref