Andreas Milidonis
University of Cyprus
Estimation of Stock Price Distress Costs Associated with Bond Downgrades Using Regime Switching Models.
- We introduce a new risk measure to capture changes in the dynamics of stock returns when new information enters the market.
- The risk measure is based on regime-switching processes.
- Using corporate bond rating downgrades, we show a three-fold increase in volatility of respective stock returns starting on the day of the announcement.
- The increase in volatility is persistent for about three days.