Performance and determinants of the Merton structural model: Evidence from hedging coefficients

Flavia Barsotti, L. Del Viva*

*Autor correspondiente de este trabajo

Producción científica: Artículo en revista indizadaArtículorevisión exhaustiva

1 Cita (Scopus)

Resumen

We empirically test the effectiveness of the Merton (1974) model in measuring the sensitivity of corporate bond returns to changes in equity value. We study the main variables that affect the performance of the model and relax the assumption of normally distributed rates of return. Results show that less than 6% of the bonds have a hedge ratio within 10% from the model predicted value. Volatility, time to maturity, size, distress, liquidity and information quality are found to be significant determinants of the efficacy of the model.

Idioma originalInglés
Páginas (desde-hasta)95-111
Número de páginas17
PublicaciónJournal of Banking and Finance
Volumen58
DOI
EstadoPublicada - 1 sept 2015
Publicado de forma externa

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