Bond Market Response to the Collapse of Prominent Investment Banks
Wilfrid Laurier University - School of Business & Economics
Florida Atlantic University - College of Business
University of North Carolina Wilmington
April 9, 2013
We assess the bond market response to the Bear Stearns rescue in March 2008 and the Lehman Brothers failure (combined with news about the acquisition of Merrill Lynch and AIG's investment banking problems and subsequent rescue) in September 2008. The Bear Stearns rescue elicited a moderately favorable impact on bond prices, which may suggest that the regulatory intervention reduced fear and stabilized bond markets. Conversely, the Lehman Brothers failure elicited a pronounced negative impact on bond prices. For both credit events, the bond price effects were less favorable or more negative for financial issuers. The effects of other firm-specific and bond-specific characteristics are conditioned on the credit event, and whether the issuer was a financial or non-financial firm.
Number of Pages in PDF File: 53
Keywords: bonds, event study, market efficiency, credit spreads
JEL Classification: G12, G14
Date posted: April 10, 2013
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