Altman, Edward I. , "Defaulted Bonds: Demand, Supply and Performance, 1987-1992", Financial Analysts Journal, Vol. 49, No. 3, (May/June 1993), pp. 55-60.

Abstract: Estimates of the market value of total private and public defaulted and distressed debt are as high as $200 billion in 1990, with a slight decline to about $175 billion in 1992. The supply can be expected to shrink in the near future, as defaults and bankruptcies by large U.S. companies appear to have peaked, At the same time, the demand for such securities is likely to remain fairly constant as long as they can offer competitive returns.

Over the 1987-92 period, the Altman-Merrill Lynch Index of Defaulted Debt Securities (the A-M Index) offered Monthly total returns comparable to those of common stock and high-yield bonds, In three of the six years, the A-M Index had spectacular returns -- well above those on the S&P500 and the Merrill Lynch high-yield bond index. In two years, however, it has large negative returns. Over the entire period, defaulted bonds performed about as well as stocks and high-yield bonds, although they also experienced significantly greater risk.