Bond Market Response to the Collapse of Prominent Investment Banks
53 Pages Posted: 10 Apr 2013
Date Written: 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.
Keywords: bonds, event study, market efficiency, credit spreads
JEL Classification: G12, G14
Suggested Citation: Suggested Citation