A Screening Model for Corporate Bond Picking

28 Pages Posted: 19 Oct 2017

See all articles by Rainer Lueg

Rainer Lueg

Leuphana University of Lueneburg - Department of Accounting, Business & Management; University of Southern Denmark - Department of Accounting, Business & Management

Jon Toft

Aarhus University

Date Written: January 1, 2017

Abstract

This paper models how to calculate credit spreads on high-yield bond issues if the corporation has no underlying traded stocks. The model is developed from existing literature and from an intuitive idea and will not use outdated financial ratios and variables. We find that the use of outdated financial ratios and variables — which are dependent on underlying stocks traded — are not necessary to develop a model which maintains an acceptable explanatory power around 70% (R2 ) of the credit spread. The model was back-tested using archival data. The results confirm the usefulness of the model. Our model is among the first that helps investors in picking profitable bonds from companies that are not listed at a stock exchange.

Keywords: Screening Tool, Corporate Bonds, High-Yield Bonds, Non-Listed Corporations

JEL Classification: G12, M10, M21, M41

Suggested Citation

Lueg, Rainer and Toft, Jon, A Screening Model for Corporate Bond Picking (January 1, 2017). Available at SSRN: https://ssrn.com/abstract=3055663 or http://dx.doi.org/10.2139/ssrn.3055663

Rainer Lueg (Contact Author)

Leuphana University of Lueneburg - Department of Accounting, Business & Management ( email )

Universitätsallee 1
Lüneburg, 21335
Germany

University of Southern Denmark - Department of Accounting, Business & Management ( email )

Universitetsparken 1
Kolding, 6000
Denmark

Jon Toft

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

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