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A Historical Perspective On Dutch Auction Rate Preferred Stock

Author

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  • Lynda S. Livingston

Abstract

In February of 2008, the $330 billion auction-rate security market began to fall apart. Brokerage houses that managed the periodic auctions refused to support their issues, so that auctions failed and liquidity disappeared. Investors had a wake-up call: an asset they had thought was a money-market equivalent was in fact something much more risky. In this paper, we consider this current meltdown in light of the 1980s history of Dutch Auction Rate Preferred Stock (DARPS). We conclude that a significant contributor to the recent problems was the marketing of DARPS to individuals, when the security was designed for corporate investors.

Suggested Citation

  • Lynda S. Livingston, 2010. "A Historical Perspective On Dutch Auction Rate Preferred Stock," Accounting & Taxation, The Institute for Business and Finance Research, vol. 2(1), pages 1-20.
    • Handle: RePEc:ibf:acttax:v:2:y:2010:i:1:p:1-20
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    More about this item

    Keywords

    Preferred Stock; Auction; Dividends Received Deduction;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law

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