Browsing by Subject "Bonds"
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Item A comparison of alternative models of the relationship between promised yields on risky bonds and promised yields on risk-free bonds(Texas Tech University, 1997-08) Yeager, Jack E.The main purpose of this study is to compare the expected yields on bonds that are similar in all respects except their default risk, in an attempt to determine whether a relationship exists; and if so, whether the relationship between these yields is best explained by the Yawitz model, the Pye model or the Wu model. If the marginal investors in risky bonds are risk neutral and the bond market is efficient in the sense that promised risky bond yields are grossed up for default risk so that the expected retum equals the investors required retum, then the realized retum on two bond portfolios that differ only with respect to default risk should equal the risk-free rate, on average. This result would be consistent with the model proposed by Yawitz (1977). Conversely, if the marginal investor in risky bond markets is risk averse and bond markets are efficient, then the realized retum on two bond portfolios that differ only with respect to default risk must, on average, vary by a premium to compensate risk averse investors in risky bonds for the uncertainty of the investment. If this additional risk premium is unrelated to the level of the risk-free rate then the results would be consistent with the model proposed by Pye (1974). If this premium varies proportionally with the level of the risk-free rate then the results would be consistent with the model suggested by Wu (1991). If the study provides evidence suggesting the presence of an additional risk premium, additional tests will be conducted to determine whether the premium is stable over time.Item Determinants of bondholder wealth effects in corporate restructurings: evidence from spin-offs as compared to mergers and acquistions(2002) Chandra, Shilpa Mahajan; Parrino, Robert; Starks, Laura T.This dissertation investigates the effects of mergers and acquisitions and spin-offs on the firm and its debtholders. This paper analyzes changes in the firm characteristics including capital structure, business risks, and operating performance. I develop a theoretical model that predicts the relationship between cross-sectional firm characteristics and the changes in wealth of the original bondholders (of the parent/acquirer firms) that have publicly traded outstanding nonconvertible debt at the time of a spin-off and merger/acquisition respectively. The empirical analysis shows wealth effects on the original bondholders of the parent/acquirer firm. Monthly bond returns are calculated relative to the announcement date for a sample of firms that have undertaken a spin-off or merger/acquisition. The results show a cross-sectional variation in the reaction to the announcement. The cross-sectional firm characteristics that determine the magnitude of these effects are identified. A parent firm’s pre-spin-off leverage, change in leverage, and change in operating efficiency as a result of the spin-off are important determinants of wealth distribution to bondholders in these corporate restructurings. The results of this study provide evidence that different value drivers, depending on the type of restructuring, determine bondholder wealth effects. In spin-offs, the leverage effect is the predominant determinant of bondholder wealth. In mergers and acquisitions, the change in business risks primarily influences the effect of the merger on bondholder wealth. Bondholders gain more in focus-increasing spin-offs and in focus-preserving (nonconglomerate) mergers.Item Fixed-income portfolio optimization(2009-12) Chandrasekhar, Rohan; Kutanoglu, Erhan; Lasdon, Leon S., 1939-The fixed maturity, pricing and cash flow characteristics of fixed-income instruments like bonds distinguish them from equities and complicate the application of mean-variance optimization techniques to bond portfolio management. This report examines the challenges involved and reviews some of the theoretical term structure models and empirical estimation methods that have been proposed to address them. An empirical study is conducted which finds evidence of increased interest rate volatility, which affirms the need for a portfolio approach in fixed-income investing. An optimal portfolio of bond funds constructed using the Markowitz method is found to provide the best risk-return profile over the chosen study period, suggesting the viability of this approach as an alternative to holding bonds.Item Persistence, sudden changes, and modeling volatility of financial time series(Texas Tech University, 2004-12) Covarrubias, GuillermoNot availableItem Political choices for municipal bonds(2014-08) DiPietro, John Joseph; Sparrow, Bartholomew H., 1959-Municipal Bonds represent an important but understudied source of funds for governments. This paper seeks to shed light on the previously hidden political choices that influence the choices of governments to pursue bonds, as well as to act as a springboard for future bond research.Item Pricing treasury inflation protected securities(2012-05) Fairbanks, Josh; Hein, Scott E.; Mercer, Jeffrey M.; Whitby, Ryan; Winters, Drew B.; Westfall, Peter H.Essay 1: Academics and practitioners perceive Treasury Inflation-Protected Securities (TIPS) to be tax disadvantaged relative to their nominal counterparts because the tax code requires investors to pay annual income taxes on the inflation adjustments made to the principal. The only caveat is if the investor holds the inflation-protected security in a nontaxable account. This paper investigates the price of TIPS for a positive income tax rate to see if the marginal investor considers the tax consequences of owning the security. From 2002 to 2004, I find some evidence of a positive marginal tax rate in the price of TIPS. From 2005 to 2010, I show that the price of TIPS and nominal Treasury notes and bonds do not include economically meaningful marginal tax rates. Although differences may exist in the tax code, the findings suggest the marginal investor does not price the unique tax treatment. Essay 2: Treasury Inflation-Protected Securities (TIPS) are distinctive assets that compensate investors for inflation by adjusting the principal value, and subsequently interest payments, for changes in the non-seasonally adjusted urban Consumer Price Index. In this essay, I propose the addition of a constant term, “alpha,” to the theoretical bond pricing equation. The objective is to test for a significant alpha in the monthly cross-section of TIPS prices from January 2002 to December 2010. The results suggest a significant alpha exists in the price of TIPS. For comparison, I also investigate the price of nominal Treasury notes and bonds for a significant alpha. I find evidence of a significant alpha in the price of nominal securities, but the parameter estimates are not economically meaningful. The empirical findings suggest that the inclusion of an alpha is necessary when modeling TIPS prices.Item Successful frameworks for financing capital projects: an analysis of Texas community college processes for bond referendums, 1998-2008(2009-12) Brazier, Elise Ann; Roueche, John E.The purpose of this study was to investigate the capital project financing methods of Texas community college districts, including an analysis of successful general obligation bond elections. A two-phase research approach was used in this analysis. The first part of the research investigation surveyed 65 community college executives and administrators representing 50 community college districts in Texas. College leaders were asked to participate in an online survey regarding finance methods used to fund capital projects. This included leaders who have participated in general obligation bond referendums on their college campuses. Thirty-four out of 65 leaders responded to the survey, which resulted in a 52.3% response rate. The second part of the investigation disaggregated survey response information from district college leaders into two groups: Those who finance capital projects utilizing general obligation bonds (GO bond) and those who use other methods than general obligation bonds to fund capital improvements or renovations. A cross-sectional study was conducted during the second phase, which investigated 12 community college district leaders’ processes and strategies of passing general obligation bond elections from 1998 to 2008. As a follow-up to the survey instrument, 11 interviews were conducted from GO and non-GO bond community college districts. The results from the findings led to the following conclusions. Each community college district is unique in how capital projects are funded. The commonalities that existed among survey participants and the personal interviews conducted were establishing strong community relationships prior to the planning of bond campaigns. The data reinforced the basic premise of building key relationships with civic/business leaders early on in the process. The importance of creating an environment that focuses on open communication and trust in support of the college was a determining factor for winning bond elections. The recommendations that emerged from this study were community college leaders must begin a dialogue to share best practices in capital project funding. Secondly, community college leaders must advocate for an organized system of data collection to record general obligation bond elections from their state agencies. Lastly, an organization for capital project advocacy must be created.Item The effect of bond ratings on the cost of equity capital for electric utilities(Texas Tech University, 1983-08) Sil, ShomirNot availableItem THREE ESSAYS ON THE RELATIONSHIP BETWEEN WEALTH TRASNSFERS AND SUBSEQUENT WEALTH(2011-08) Sybrowsky, Jacob P.; Finke, Michael S.; Hampton, Vickie L.; Salter, John; Harness, Nathan; Whitby, RyanLife-cycle theory provides a theoretical framework for maximizing utility following the receipt of a wealth transfer. Empirical evidence has shown that the source of a transfer may affect how the transfer is framed. Individuals and households are affected by individual time preference, which is the process by which individuals weigh the tradeoffs of consumption across time and dissipation refers to the method by which funds drawn down across time. Also, the subjective weight that an individual puts on possible outcomes may affect demand for risky assets. Individual attributes like propensity to trust and locus of control are established personality constructs related to choice under uncertainty. This dissertation adds to the current body of knowledge of wealth change and preferred portfolio composition. Using life-cycle theory and framing as potential frameworks, results indicate that framing better explains subsequent variation in wealth among respondents who recently received an inheritance. Results show that a smaller transfer may be viewed as found money to be spent on immediate consumption rather than incorporated into life-cycle spending. Testing the relationship between time preference and dissipation risk by examining subsequent change in wealth among households who experienced significant increases in wealth provides insight into the relationship between time preference and wealth accumulation. Results indicate a higher propensity to continue saving and increase wealth over time for those who have lower time preference. This may lead to over-saving, based on life-cycle theory. The study of individual attributes like trust and time preference may provide insight into preference for risky assets. Results show that those who are less trusting are less likely to select a portfolio with risky assets and are more likely to prefer government bonds. Those closest to the median level of locus of control are more likely to prefer a large portion of government bonds, compared to individuals with low levels of locus of control.