University of Sussex
Zeng, Yiming.pdf (1.81 MB)

Euro-denominated high-yield corporate bonds

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posted on 2023-06-10, 05:03 authored by Yiming ZengYiming Zeng
High-yield bonds are a unique and increasingly important asset class. They are different from investment-grade bonds because they exhibit higher default risk and are less sensitive to changes in interest rates. There is, however, a paucity of literature on the high-yield bond market, regardless of its market size and economic importance. This thesis concentrates on Euro-denominated high-yield corporate bonds from the perspective of the secondary and primary markets. In the first empirical chapter, we critically compare three major databases: Bloomberg, Refinitiv Eikon, and Refinitiv Datastream, which provide data for Euro-denominated high-yield corporate bonds. We find that Bloomberg provides more comprehensive data than Refinitiv Eikon and includes a higher number of bonds with available clean prices than Refinitiv Datastream. In addition, we observe that accrued interest, prices, and price returns differ from an individual bond viewpoint. Therefore, we use Bloomberg as our primary data source for sample size and data consistency purposes. In the second empirical chapter, we investigate the term, default, illiquidity, and downside factors in pricing Euro-denominated high-yield corporate bonds between 2000 and 2021. We find that the term, default, illiquidity, and downside factors are positively related to excess returns. Results of our Markov-switching model suggest that the illiquidity factor plays a vital role in explaining excess returns and fluctuates in different market scenarios, particularly for high-yield bonds with the lowest credit ratings (e.g., CCC and below). The effect of illiquidity on BB-rated bonds is different from the effect on the high-yield bonds with the lowest credit ratings. In the third empirical chapter, we investigate the extent of underpricing in the primary market for Euro-denominated high-yield corporate bonds. Determinants of underpricing are examined with an ordinary least squares (OLS) regression with year, industry, and country fixed effects. Our evidence suggests that high-yield bonds are underpriced. The underpricing is more likely caused by information asymmetry problems and the frequency of trading following issuance in the secondary market. Overall, our findings provide valuable information that may be used for performance analysis and asset allocation in the high-yield bond market.


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  • Accounting and Finance Theses

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  • doctoral

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  • eng


University of Sussex

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