Returns on low-grade bonds over the 1978-89 period (estimated by average monthly return, net of management fees, transaction costs and operating expenses, on all publicly traded low-grade bond funds) out performed the predictions of a two-factor model in 1982 and 1983 and under performed in 1989. During the rest of the sample period, there is no clear evidence of abnormal performance.

One possible explanation for the two periods of abnormal performance may be shifts in the perceived liquidity of low-grade bonds. During 1982 and 1983, Drexel finished putting in place the organization to issue low-grade bonds on a large scale and to make a secondary market in the bonds it issued. In 1989, with Drexel's collapse, the issuance and trading of low-grade bonds dropped precipitously. Because there is no systematic data on the costs of trading low-grade bonds, or the volume of trading, scientific tests of this liquidity hypothesis are unfortunately not possible.