THE REGULATION EFFECT OF CREDIT RATINGS ON BOND INTEREST YIELD: THE CASE OF JUNK BONDS

This paper examines the 'regulation effect' of bond ratings of yield. It is shown that the high yield premia on 'speculative bonds' not only reflect the high probability of default, but also contain an effect of regulation. A multiple discriminant analysis (MDA) technique is used to separate the default component of yield premium from the regulation effect. The results in the study suggest that non-regulated investors, by taking advantage of the regulation effect, may earn an extra premium on a diversified portfolio of 'speculative bonds', at least for the period under this study (from January 1982-June 1987).     

Survivorship and the Economic Grim Reaper

The 10-year survival rate for firms trading on the New Yorkand American stock exchanges between 1963 and 1995 is only 61%.This article explores the process by which firms come to bedelisted. We calculate the returns of firms from 10 years beforedelisting to their delisting date and show that, on average,the economic grim reaper kills poorly performing firms. We documenttakeover and distress delisting rates through time, analyzepredelisting equity market returns for both groups, and explorehow firm characteristics and regulations governing corporatetakeovers and bankruptcy affect the friction with which theseprocesses operate. We believe this is the first analysis todocument long-term equity market and operating performance ofdelisting firms. The study builds on research from both financeand industrial organization and is consistent with a Schumpeterianview of economic development.     

Bootstrapping Student Understanding of What is Going on in Econometrics

Econometrics is an intellectual game played by rules based on the sampling distribution concept. Most students in econometrics classes are uncomfortable because they do not know these rules and so do not understand what is going on in econometrics. This article contains some explanations for this phenomenon and suggestions for how this problem can be addressed. Instructors are encouraged to use explain-how-to-bootstrap exercises to promote student understanding of the rules of the game.     

Eliminating Problems Caused by Multicollinearity: A Warning

Martin and Bender investigate for a relatively small sample of sixth-grade social studies students whether different learning styles influenced their performance after exposure to “Trade-Offs” and, also, whether this influenced their performance, differentially, by sex. For the sample used, the former seemed to be true, although the small difference for the latter was not statistically significant.     

Real exchange rates and U.S./Korean bilateral trade

This study examines the impacts of the real exchange rate on the bilateral trade between the U.S. and Korea using a highly disaggregated data set. In doing so, we estimate real exchange rate elasticity for 59 exported commodities （SITC two-digit classification） and 48 imported commodities （also SITC two-digit classification）. Furthermore, we classify commodities according to their attributes in order to examine whether commodity attributes influence the exchange rate elasticity of exports and imports. According to this study＇s results, there have been large changes across those commodities that are ranked as being top contributors to U.S. exports to and imports from Korea for the time periods before, during, and after the Korean financial crisis. Commodity attributes are shown to influence the exchange rate elasticity but are not always consistent with the a priori expectations.     

Multi-track financing

In today's uncertain economic environment, when seeking to finance a capital project, healthcare borrowers should adopt a multi-tracked funding strategy that permits them to change capital-funding routes quickly in response to changing circumstances. The multi-tracking process requires two stages prior to securing a commitment and beginning the closing process: due diligence and indication of interest. This process should present no material additional cost during these two stages, giving healthcare borrowers the flexibility to explore a variety of financing options.