Performance of Insured Municipal Bonds After the Financial Crisis — Presentation Detail — Celebration of Scholars

Additional Information

More information is available at carthage.edu/celebration-scholars/. The following are members of the Research, Scholarship, and Creativity Committee who are eager to listen to ideas and answer questions:

Thomas Carr
Katherin Hilson
Kim Instenes
John Kirk
Sarah Terrill

Performance of Insured Municipal Bonds After the Financial Crisis

Name: Catherine Lau
Department: Social Science
Type of research: Independent research

Name: Allison Herro
Major: Management
Hometown: Franklin
Faculty Sponsor:
Other Sponsors:
Type of research: Independent research

Name: Alyssa Joseph
Major: Accounting
Hometown: Chicago
Faculty Sponsor:
Other Sponsors:
Type of research: Independent research

Abstract

Financial guaranty insurance played an important role in the municipal bond market during the years up to the financial crisis, covering over 50% of new issuance at its peak in 2005. During the financial crisis, the seven AAA/Aaa financial guaranty insurers which dominated this industry all lost their AAA/Aaa status. We study the effect these downgrades had on yields in the municipal bond market, both on insured debt and uninsured debt, by analyzing market prices both before and after the downgrades. We also examine changing patterns in issuance in the municipal bond market which may be attributable to the lack of AAA insurance.

We find that after the downgrades, the insurance has a negative effect on the bond yields. This helps explain why this short lived industry has failed to rebound and provides a cautionary tale about the perils of rapid growth and risk concentration.

Poster file

Submit date: Feb. 18, 2013, 11:18 a.m.