A Fast Literature Search Engine based on top-quality journals, by Dr. Mingze Gao.
- Topic classification is ongoing.
- Please kindly let me know [mingze.gao@mq.edu.au] in case of any errors.
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Results 8 resources
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This article develops a multi-factor econometric model of the term structure of interest-rate swap yields. The model accommodates the possibility of counterparty default, and any differences in the liquidities of the Treasury and Swap markets. By parameterizing a model of swap rates directly, the authors are able to compute model-based estimates of the defaultable zero-coupon bond rates implicit in the swap market without having to specify a priori the dependence of these rates on default hazard or recovery rates. The time series analysis of spreads between zero-coupon swap and treasury yields reveals that both credit and liquidity factors were important sources of variation in swap spreads over the past decade.
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The authors investigate the impact of the Tax Reform Act of 1986 on the relative pricing of U.S. Treasury Bonds. They obtain positive statistically and economically significant estimates for the implicit tax rates of a 'representative' investor in the late 1970s and early 1980s. After the 1986 tax reform, the point estimates for the tax rate are close to zero. Tests for a regime shift associated with the 1986 tax reform support the hypothesis that this event largely eliminated tax effects from the term structure. The authors discuss both institutional and statutory explanations for this change.
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This study examines the initial-day and aftermarket price performance of corporate straight debt IPOs. The authors find that initial public offereings (IPOs) of speculative grade debt are underpriced like equity IPOs, while those rated investment grade are overpriced. IPOs of investment grade debt are typically issued by firms listed on the major exchanges and underwritten by prestigious underwriters. In contrast, junk bond IPOs are more likely to be handled by less prestigious underwriters and are typically issued by over-the-counter firms. The authors' analysis also reveals that bond rating, market listing of the firm, and investment banker quality are significant determinants of bond IPO returns.
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The authors derive a unified model that gives closed form solutions for caps and floors written on interest rates as well as puts and calls written on zero-coupon bonds. The crucial assumption is that simple interest rates over a fixed finite period that matches the contract, which the authors want to price, are log-normally distributed. Moreover, this assumption is shown to be consistent with the Heath-Jarrow-Morton model for a specific choice of volatility.
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Swedish government lottery bonds have coupon payments determined by lottery. They offer a unique opportunity to study a security with uncertain payoffs having a known, observable distribution. The risk associated with the lotteries is idiosyncratic by construction and should not command a risk premium in equilibrium. The bonds are traded in two forms, allowing us to evaluate the rewards to bearing extra lottery risk. Despite its idiosyncratic nature, we find prices appear to reflect aversion to this risk. We evaluate the empirical determinants of this differential pricing and possible explanations for it.
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This article provides a Markov model for the term structure of credit risk spreads. The model is based on Jarrow and Turnbull (1995), with the bankruptcy process following a discrete state space Markov chain in credit ratings. The parameters of this process are easily estimated using observable data This model is useful for pricing and hedging corporate debt with imbedded options, for pricing and hedging OTC derivatives with counterparts risk, for pricing and hedging (foreign) government bonds subject to default risk (e.g., municipal bonds), for pricing and hedging credit derivatives, and for risk management.
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Recent studies show that when a regression model is used to forecast stock and bond returns, the sample R [superscript 2] increases dramatically with the length of the return horizon. These studies argue, therefore, that long-horizon returns are highly predictable. This article presents evidence that suggests otherwise. Long-horizon regressions can easily yield large values of the sample R [superscript 2], even if the population R [superscript 2] is small or zero. Moreover, long-horizon regressions with a small or zero population R [superscript 2] can produce t-ratios that might be interpreted as evidence of strong predictability. In general, the analysis provides little support for the view that long-horizon returns are highly predictable.