Municipal Bond Liquidity and Default Risk

2017 ◽  
Vol 72 (4) ◽  
pp. 1683-1722 ◽  
Author(s):  
MICHAEL SCHWERT
Keyword(s):  
Default Risk ◽  
Municipal Bond ◽  
Bond Liquidity

How a Credit Enhancement Affects Bond Liquidity and Default Risk of the Firm

2019 ◽  
Keyword(s):  
Default Risk ◽  
Natural Experiment ◽  
Credit Enhancement ◽  
Government Guarantee ◽  
Bond Liquidity ◽  
The Impact

The authors use a quasi-natural experiment to analyze the impact of a particular type of credit enhancement, a government guarantee, on bond liquidity and default risk of the firm. They find that a guarantee (1) dramatically increases the liquidity of a bond, (2) generally reduces the default risk of the firm and pre-existing bonds issued by the firm, and (3) increases the liquidity of pre-existing non-guaranteed debt issued by the same firm. They find that the liquidity improvement caused by a guarantee reduces overall default risk of the firms by 5.84%.

Municipal Bond Liquidity

2004 ◽  
Author(s):  
Lawrence Harris ◽  
Michael S. Piwowar
Keyword(s):  
Municipal Bond ◽  
Bond Liquidity

The issuer effect on default risk insured municipal bond yields

1994 ◽  
Vol 18 (3) ◽  
pp. 331-342 ◽  
Author(s):  
C. Steven Cole ◽  
Pu Liu ◽  
Stanley D. Smith
Keyword(s):  
Default Risk ◽  
Municipal Bond ◽  
Bond Yields

scholarly journals Price distortions and municipal bonds premiums: evidence from Switzerland

2021 ◽  
Vol 7 (1) ◽  
Author(s):  
Darko B. Vukovic ◽  
Carlos J. Rincon ◽  
Moinak Maiti
Keyword(s):  
Instrumental Variables ◽  
Default Risk ◽  
Structural Breaks ◽  
Structural Break ◽  
Lagrangian Multiplier ◽  
Municipal Bonds ◽  
Municipal Bond ◽  
Cross Sectional ◽  
Bond Spreads ◽  
Price Distortions

AbstractThis study examines the pricing of municipal bonds before and after a currency shock in Switzerland. Two approaches are used to decompose the municipal to treasuries bond spreads into liquidity, maturity, and default risk premiums. The first approach is the model of the cross-sectional instrumental variables, and the second approach is the model of the instrumental variables with panel data. This study examines the composition of spreads for both approaches, in three scenarios: before, throughout, and after the currency shock. The study performed Durbin-Wu-Hausman tests for each decisive model to verify endogeneity issues, including the Lagrangian Multiplier test, the Cragg-Donald Wald F statistic to confirm the relationship of instrumental and endogenous variables, and the structural break test (Bai-Perron test) to determine the existence of structural breaks in bond distortions. This study finds that the currency price distortions of the Swiss franc in January 2015 made long-run changes in the composition of the municipal bond spreads. This research contributes to the understanding of municipal bond pricing by showing that default risk accounts for a large portion of the municipal bond spread, while maturity risk plays a lesser role. According to our empirical findings, unexpected large currency price shocks may have long-term implications on the municipal bond spreads.

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