Fallen Angels: <i>Characteristics, Performance, and</i><i>Implications for Investors</i>

Dor, Arik Ben; Xu, Zhe

doi:10.3905/jfi.2011.20.4.033

Cited by 7 publications

(3 citation statements)

References 11 publications

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“…The difference in magnitude can be ascribed to the fact that our study is focused merely on downgrades that cross the investment grade boundary leading to a deeper market reaction. Thus, confirming Hite and Warga () and Ben Dor and Xu's () findings, we prove that moving from the IG to the speculative grade rating the intensity of the bond price reaction is amplified.…”

supporting

confidence: 89%

“…Moreover, May () highlights that bond prices show negative abnormal returns in the 10 days after the firm's downgrade. In accordance, Ben Dor and Xu () show negative monthly excess returns up to three quarters before the downgrade and the strongest reaction during the rating event month.…”

Section: Literature Overview On the Impact Of Bonds' Downgradementioning

confidence: 58%

“…These results confirm the findings of Wansley et al . (), Hite and Warga (), Steiner and Heinke (), May () and Ben Dor and Xu () about the negative excess returns registered by the bond price before the downgrade. As expected, within the announcement window (−1; +1), we observe a highly significant CAR of −3.64% .…”

Section: Resultsmentioning

confidence: 99%

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The Impact of Fallen Angels on Investment Grade Corporate Bonds Portfolios: Evidence From the European Market

2014

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This work examines the impact on the price of corporate bonds denominated in Euro of a downgrade to high yield announced by Standard & Poor’s and/or Moody’s Investors Service. In particular, we observe the bond price behaviour around three events. The first event is the first downgrade announcement from one of the rating agencies, and we find significant cumulative abnormal returns before and at around the event. The second event is the downgrade announcement by the second rating agency: in this case, the security becomes a fallen angel and must leave the institutional portfolios constrained to investment grade (IG) securities. We record again a significant negative price reaction but larger than in the previous case and significantly higher when preceded by a widening of the credit spread in the corporate bonds market. Broadening the existing literature, we perform a third event study, focused on the subsequent bond deletion from an IG benchmark. In this case, our results show positive and significant excess returns after the month-end index rebalancing, revealing a price reversal pattern of the fallen angel after its release from the index. This price rebound is the higher, whereas the stronger was the bond price pressure at the downgrade announcement. These insights offer some practical guideline for those professionals that manage IG and high-yield portfolios

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supporting

confidence: 89%

Section: Literature Overview On the Impact Of Bonds' Downgradementioning

confidence: 58%