Bond Market Response to the Collapse of Prominent Investment Banks |
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Authors: | Si Li Jeff Madura Nivine Richie |
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Institution: | 1. School of Business and Economics, Wilfrid Laurier University, PBC School of Finance Tsinghua University;2. Florida Atlantic University;3. University of North Carolina Wilmington |
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Abstract: | We find that the Bear Stearns rescue in March 2008 elicited a neutral or moderately favorable impact on bond prices. Conversely, we find that the Lehman Brothers failure (combined with news about Merrill Lynch and American International Group) in September 2008 elicited a pronounced negative impact. Bond prices of financial firms suffered more than bonds of nonfinancial firms following the Lehman failure. Our multivariate analysis shows that bonds issued by financial institutions that were previously presumed to be protected (based on bond rating and firm size) suffered more pronounced losses in response to the Lehman failure. |
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Keywords: | bonds event study market efficiency credit spreads G12 G14 |
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