The Link between Default and Recovery Rates: Theory, Empirical Evidence, and Implications
This paper analyzes the association between default and recovery rates on credit assets and seeks to empirically explain this critical relationship. We examine recovery rates on corporate bond defaults over the period 1982–2002. Our econometric univariate and multivariate models explain a significan...
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| Veröffentlicht in: | The Journal of business (Chicago, Ill.) Ill.), 2005-11, Vol.78 (6), p.2203-2228 |
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| container_end_page | 2228 |
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| container_issue | 6 |
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| container_title | The Journal of business (Chicago, Ill.) |
| container_volume | 78 |
| creator | Altman, Edward I. Brady, Brooks Resti, Andrea Sironi, Andrea |
| description | This paper analyzes the association between default and recovery rates on credit assets and seeks to empirically explain this critical relationship. We examine recovery rates on corporate bond defaults over the period 1982–2002. Our econometric univariate and multivariate models explain a significant portion of the variance in bond recovery rates aggregated across seniority and collateral levels. We find that recovery rates are a function of supply and demand for the securities, with default rates playing a pivotal role. Our results have important implications for credit risk models and for the procyclicality effects of the New Basel Capital Accord. |
| doi_str_mv | 10.1086/497044 |
| format | Article |
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| ispartof | The Journal of business (Chicago, Ill.), 2005-11, Vol.78 (6), p.2203-2228 |
| issn | 0021-9398 1537-5374 |
| language | eng |
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| source | EBSCOhost Business Source Complete; JSTOR Archive Collection A-Z Listing; EZB-FREE-00999 freely available EZB journals |
| subjects | Bank credit Banking industry Bankruptcy Bond markets Business studies Collateral Company insolvency Corporate bonds Corporate debt Correlations Credit risk Data analysis Debt management Default Econometrics Economic conditions Economic models Economic performance Economic recessions Economic recovery Empirical tests Financial management Financial reporting Financial securities Gross domestic product Linear regression Risk Seniority Studies Supply & demand Variables |
| title | The Link between Default and Recovery Rates: Theory, Empirical Evidence, and Implications |
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