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Callable Bonds Revisited
Author(s) -
Banko John C.,
Zhou Lei
Publication year - 2010
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2010.01086.x
Subject(s) - callable bond , bond , economics , investment (military) , bond market , monetary economics , interest rate , embedded option , financial economics , finance , politics , political science , law
In light of the dramatic changes in the callable bond market, we reexamine the determinants of callable bonds. Using data from 1980‐2003, we find that callable bonds are often issued by firms with both information asymmetry and underinvestment problems. However, risk‐shifting does not appear to be a major factor. Furthermore, we find that interest rate hedging is an important factor for investment‐grade bonds and when interest rates are high but not so for below‐investment‐grade bonds or when rates are low.