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Measuring Corporate Bond Mortality and Performance



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    • Stern School of Business, New York University. The author would like to express his appreciation to David Goodman, Daniel Kingsbury, Lee Yut Khoon, and Jeffrey Klearman for their data assistance and to Professor Aaron Tenenbein for his valuable comments. Partial support for this research was supplied by the Foundation for Research of the Institute for Charter Financial Analysts. Finally, my appreciation goes to an anonymous reviewer for the insistence to be as precise as possible. The results are solely the work and opinion of the author.


This study develops an alternative way to measure default risk and suggests an appropriate method to assess the performance of fixed-income investors over the entire spectrum of credit-quality classes. The approach seeks to measure the expected mortality of bonds and the consequent loss rates in a manner similar to the way actuaries assess mortality of human beings. The results show that all bond ratings outperform riskless Treasuries over a ten-year horizon and that, despite relatively high mortality rates, B-rated and CCC-rated securities outperform all other rating categories for the first four years after issuance, with BB-rated securities outperforming all others thereafter.

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