Are Fundamentals Priced in the Bond Market?

Posted: 24 Nov 2003

See all articles by Inder K. Khurana

Inder K. Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business

K. K. Raman

The University of Texas at San Antonio

Abstract

To date, the discussion of the Lev and Thiagarajan (1993) fundamentals in the prior literature has been exclusively in the context of the stock market. Our study is the first to examine the value relevance of these fundamentals for default risk. By focusing on the market for new bond issues, we examine the value relevance of the fundamental score using expected rather than realized returns. Also, by focusing on the bond market we provide a different perspective than that brought by prior studies relying solely on stock prices. We find the fundamentals to be priced in the market for new bond issues as indicators of expected future earnings and to be value relevant in enabling the market to discern differences in bond credit quality over and above the published bond ratings.

Keywords: fundamentals, bond market, ex ante returns, expected future earnings

JEL Classification: M41, G12, G33

Suggested Citation

Khurana, Inder and Raman, K. K., Are Fundamentals Priced in the Bond Market?. Contemporary Accounting Research, Vol. 20, No. 3, Fall 2003. Available at SSRN: https://ssrn.com/abstract=462800

Inder Khurana

University of Missouri at Columbia - Robert J. Trulaske, Sr. College of Business ( email )

331 Cornell Hall
Columbia, MO 65211
United States
573-882-3474 (Phone)
573-882-2437 (Fax)

K. K. Raman (Contact Author)

The University of Texas at San Antonio ( email )

One UTSA Circle
San Antonio, TX 78249
United States
210-458-8749 (Phone)

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