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Foundations of High-Yield Analysis

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Overview

This Research Foundation brief explores various dimensions of the high-yield bond market. One contributor decomposes returns and relates risk and associated risk premiums via an econometric fair value model. Another illustrates principles of credit analysis via a case study involving a debt-financed merger. A third analytical piece focuses on forecasting the default rate. Two remaining contributions are primers—one on the corporate bankruptcy process and the other on high-yield bond covenants. The final section presents analyzes high-yield price histories as a function of macroeconomic forces, impulse forces, risk, and technical features of the time series themselves.

About the Author(s)

Martin S. Fridson, CFA
Martin S. Fridson CFA

Martin Fridson, CFA, is chief investment officer at Lehmann Livian Fridson Advisors LLC. At brokerage firms including Salomon Brothers, Morgan Stanley, and Merrill Lynch, he became known for his innovative work in credit analysis and investment strategy. For nine consecutive years, Mr. Fridson was ranked number one in high-yield strategy in the Institutional Investor All-America Research Survey. He has served as president of the Fixed Income Analysts Society, a governor of CFA Institute, a director of New York Society of Security Analysts, and a consultant to the Federal Reserve Board of Governors. Mr. Fridson was named the Financial Executive of the Year by the Financial Management Association International, won CFA Society New York’s Ben Graham Award, and in 2000 became the youngest person inducted up to that time into the Fixed Income Analysts Society Hall of Fame. A study based on 16 core journals ranked him among the 10 most widely published authors in finance over 1990–2001. Mr. Fridson has served as special assistant to the director for deferred compensation for New York City’s Office of Management and Budget. He received a BA (cum laude) in history from Harvard College and an MBA from Harvard Business School.

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