@article {Johnsonjfi.2018.1.064, author = {Mark Johnson and Karyl Leggio and Yoon S. Shin}, title = {Assessment of Credit Risk Models on Rule 144A Corporate Bonds}, elocation-id = {jfi.2018.1.064}, year = {2018}, doi = {10.3905/jfi.2018.1.064}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Accurate assessment of credit risk can improve the performance of bond portfolio managers. Using credit ratings and market-based credit risk models from S\&P and Bloomberg, we investigate the performance of four credit risk models in the Rule 144A corporate bond markets in the United States over the 1990{\textendash}2015 period. We divide our sample into straight bonds and convertible bonds and find that (1) when it comes to straight bonds, discrete models such as S\&P{\textquoteright}s credit ratings and Bloomberg ratings determine yields more accurately than the continuous market-based models of S\&P and Bloomberg; (2) with regard to convertible bonds, a convertible option has a stronger effect than credit ratings in determining yields, and only Bloomberg default risk ratings, not S\&P credit ratings, determine the yields; (3) for convertible bonds, the continuous market-based models of S\&P and Bloomberg affect yields more significantly than discrete models; and (4) when it comes to predicting actual defaults, Bloomberg models are superior to S\&P{\textquoteright}s models, and the Bloomberg discrete model has more power than its continuous counterpart.}, issn = {1059-8596}, URL = {https://jfi.pm-research.com/content/early/2018/08/22/jfi.2018.1.064}, eprint = {https://jfi.pm-research.com/content/early/2018/08/22/jfi.2018.1.064.full.pdf}, journal = {The Journal of Fixed Income} }