Cynthia G. McDonald

High-Yield Bond Default and Call Risks

This paper empirically investigates high-yield bond default and call behavior using a competing risks hazard model that simultaneously estimates the impact of bond age, issue-specific characteristics and business conditions on both events. Results reveal nonmonotonic aging effects: default rates increase and then drop while call rates first increase and then level off. Rating and coupon size affect default risk, while maturity and issue size impact only call rates. Defaults are more likely when economic conditions have worsened and no improvement is anticipated. Calls are more likely when interest rates have decreased but are expected to rise.

The Changing Asymmetric Information Component of REIT Spreads: A Study of Anticipated Announcements

This study examines the risk-compensating behavior of REIT market makers. The bid-ask spread is hypothesized to compensate market makers for three costs: asymmetric information, order processing, and inventory. As the market makers perceived likelihood of transacting with a better-informed individual increases (decreases), the percentage of the spread that is attributed to asymmetric information will increase (decrease). This study examines the asymmetric information component of the bid-ask spread immediately prior to and following REIT dividend announcements and REIT funds from operations announcements during 1995 and 1996. The asymmetric information component increases the day before and then declines subsequent to dividend announcements of small and equity REITs. Asymmetric information costs increase following funds from operations announcements.

Does High Short Interest Lead Underperformance

A popular opinion among investors is that a heavily shorted stock is a prime candidate for an upward move since short-sellers will ultimately unwind their positions and purchase the stock. The authors find the reverse; high short interest on the Nasdaq leads underperformance. They believe investors are not fully using published short sales data in their investment choices and that confusion exists over the use of the data. They suggest that investors who intentionally ignore short-selling data may do so at some peril.

Suspicious trading halts

Abstract Trading halts are designed to protect investors from price fluctuations under conditions of illiquidity, but on the Paris Bourse specific price limits can be used to manipulate prices. Trading is halted when a trader submits an order outside the maximum daily price limit and this feature permits traders, at little cost, to easily close the market intentionally or in error. We document over 300 suspicious halts where unfilled orders halted trading. These halts are suspicious because the unfilled order was on the opposite side of the market. Discovering potentially inefficient procedures is important for the Paris Bourse and also for French and overseas investors who may be impacted by inappropriate prices.