bonds during the first half of this century. Upon searching the literature to see what help could be gained from past authorities, we found that there is a gap between the doctrines by theorists as to the kind of experience expectable and the best published statistics of realized yields and loss rates.' We are passing along the results of a small effort to plug this gap in the hope that it will help others who are similarly faced with the necessity of using the record of the past performance of corporate bonds in connection with problems of evaluation of probable future performance.Theorists in the field of investments seem generally to offer support for the idea that some reserve is desirable. This is found in such doctrines that, in contrast with common stocks, where either gain or loss may be expected, the nature of the contract in unconvertible corporate bonds severely limits the possibilities of gain but leaves quite open the possibilities of loss up to 100 per cent. Again, there is the doctrine that bond investment is a "negative art," requiring principally the gauging of the chances for loss and the estimating of what premium in yield is appropriate for acceptance of those chances. Many writers have regarded the difference between the prospective yield from market price on a bond and the yield prevailing at the same time on riskless securities of similar term as consisting mainly 1. The best published statistics on the realized yields and loss rates on corporate bonds are in W. Braddock Hickman, Corporate Bond Quality and Investor Experience and Statistical Measures of Corporate Bond Financing (Princeton: Princeton University Press, 1959 and 1960, respectively). Inasmuch as our purpose is to supplement and build upon the material already published by Mr. Hickman, our debt to him is obvious. We are also deeply indebted to the National Bureau of Economic Research for tabulating individual yields from their punched cards in such a manner as to permit the derivation of our "modified" realized yields and loss rates-particularly to Dr. Geoffrey Moore for his stimulating ideas and to Miss Elizabeth T. Simpson, whose grasp of our problem and knowledge of the basic records were extremely helpful.

THE AUTHORS WERE faced with the problem of estimating the size of reserve which would have been necessary for absorbing losses on medium-and high-grade corporate bonds during the first half of this century. Upon searching the literature to see what help could be gained from past authorities, we found that there is a gap between the doctrines by theorists as to the kind of experience expectable and the best published statistics of realized yields and loss rates.' We are passing along the results of a small effort to plug this gap in the hope that it will help others who are similarly faced with the necessity of using the record of the past performance of corporate bonds in connection with problems of evaluation of probable future performance.Theorists in the field of investments seem generally to offer support for the idea that some reserve is desirable. This is found in such doctrines that, in contrast with common stocks, where either gain or loss may be expected, the nature of the contract in unconvertible corporate bonds severely limits the possibilities of gain but leaves quite open the possibilities of loss up to 100 per cent. Again, there is the doctrine that bond investment is a "negative art," requiring principally the gauging of the chances for loss and the estimating of what premium in yield is appropriate for acceptance of those chances. Many writers have regarded the difference between the prospective yield from market price on a bond and the yield prevailing at the same time on riskless securities of similar term as consisting mainly 1. The best published statistics on the realized yields and loss rates on corporate bonds are in W. Braddock Hickman, Corporate Bond Quality and Investor Experience and Statistical Measures of Corporate Bond Financing (Princeton: Princeton University Press, 1959 and 1960, respectively). Inasmuch as our purpose is to supplement and build upon the material already published by Mr. Hickman, our debt to him is obvious. We are also deeply indebted to the National Bureau of Economic Research for tabulating individual yields from their punched cards in such a manner as to permit the derivation of our "modified" realized yields and loss rates-particularly to Dr. Geoffrey Moore for his stimulating ideas and to Miss Elizabeth T. Simpson, whose grasp of our problem and knowledge of the basic records were extremely helpful. Grateful acknowledgment is made to Robert Morrison, William Dawn, and Gary L. Swenson, graduate students at the University of Wisconsin, for statistical assistance. 424The Journal of Finance of premium offered the investor for assuming risk of later loss. This sort of theory reached perhaps its most extreme form in the writings of Kirshman, who implied that, within a diversified portfolio of bonds, sufficiently large for averages to work out, greater losses would later be incurred among the bonds of higher-risk premiums which would reduce their average realized yield below the prospective, probably down to the level of the prospective yields prevailing on only the...

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