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Risk Premia on Municipal Bonds

Published online by Cambridge University Press:  06 April 2009

Jess B. Yawitz
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Extract

The finance literature has devoted considerable attention to the study of yields, yield spreads, and rating classification for fixed income securities. In the corporate market, authors such as Hickman [6], Johnson [7], Sloane [9], and Van Home [12] have investigated the behavior of yields and yield spreads over time. Johnson found that the yield differential, defined as the corporate yield minus the equal maturity Treasury rate, was unrelated to maturity. Van Home found that this differential widened during recessionary periods; he interpreted this to reflect either a higher default probability or greater investor risk aversion. In his important paper published in 1959, Lawrence Fisher [4] employed cross-sectional data at five points in time to relate corporate yield spreads to four key variables which serve as proxies for default and marketability risks. Pogue and Soldofsky [8] extended Fisher's approach to explain not corporate bond yield spreads but rather bond ratings. As explanatory variables, Pogue and Soldofsky chose several measures of the firm's income and debt capacity.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 3 , September 1978 , pp. 475 - 485
Copyright
Copyright © School of Business Administration, University of Washington 1978

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References

REFERENCES

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