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The contagion effect of default risk insurer downgrades: The impact on insured municipal bonds

  • Brune, Chris
  • Liu, Pu
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    Municipal bonds are often insured by insurance companies that promise to pay investors in the event of default on the part of the issuer. However, just as the financial strength of the insurer can provide assurance to investors, questions about insurer stability may heighten investor concerns. This paper considers three major downgrades to large municipal bond insurers and the effects of each downgrade on a large sample of municipal bonds. Results reveal the effects to be widespread: not only are risk premiums on bonds insured by the downgraded insurer affected, but so are those on bonds insured by other insurance companies.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0148619510000792
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    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 63 (2011)
    Issue (Month): 5 (September)
    Pages: 492-502

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    Handle: RePEc:eee:jebusi:v:63:y:2011:i:5:p:492-502
    Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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