Premium
THE DIFFERENTIAL EFFECTS OF SINKING FUNDS ON BOND RISK PREMIA
Author(s) -
Barrett W. Brian,
Heuson Andrea J.,
Kolb Robert W.
Publication year - 1986
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1986.tb00462.x
Subject(s) - bond , risk premium , economics , monetary economics , bond market , secondary market , sample (material) , differential (mechanical device) , financial economics , business , finance , stock exchange , chemistry , engineering , chromatography , aerospace engineering
This study analyzes the effect that two options created by the inclusion of a sinking fund clause in a bond indenture have on the bond issue's secondary market risk premium. The impact of market prices that exceed current sinking fund redemption prices, and of par versus premium redemption, is clearly apparent when a set of issue‐specific and macroeconomic control variables are incorporated into a model of bond risk premia. Thus, secondary market prices for the large‐volume utility bond transactions in the sample reflect knowledge of individual‐issue, time‐varying indenture characteristics.