Date Added: Mar 2010
The authors study corporate bond default rates using an extensive new data set spanning the 1866−2008 period. They find that the corporate bond market has repeatedly suffered clustered default events much worse than those experienced during the Great Depression. For example, during the railroad crisis of 1873−1875, total defaults amounted to 36 percent of the par value of the entire corporate bond market. They examine whether corporate default rates are best forecast by structural, reduced-form, or macroeconomic credit models and find that variables suggested by structural models outperform the others. Default events are only weakly correlated with business downturns.