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Dollar Eurobond and U.S. Bond Pricing

Author

Listed:
  • Arvind Mahajan

    (Texas A&M University)

  • Donald R Fraser

    (Texas A&M University)

Abstract

This study develops equilibrium yield relationships between otherwise similar dollar denominated Eurobonds and U.S. bonds with the use of supply and demand conditions and the standard arbitrage argument. It them empirically tests the hypothesis that no yield differentials exist between similar securities in these two markets. A matched pair sample of these bonds is obtained on the basis of five criteria: (a) same parent; (b) same rating; (c) similar coupon rates; (d) similar time to maturity; and (e) yield observations from the same month. Empirical results obtained during 1975 to 1983 shows that dollar Eurobond yields do not differ from domestic bond yields for comparable securities. This implies that these two markets are either devoid of systematic and material imperfections or if any such imperfection do exist, their pricing influence is similar in both markets. It is also observed that issue size, issuer's rating and the market's familiarity with the issuer do not uniquely influence Eurobond pricing any differently than domestic U.S. bond pricing.© 1986 JIBS. Journal of International Business Studies (1986) 17, 21–36

Suggested Citation

  • Arvind Mahajan & Donald R Fraser, 1986. "Dollar Eurobond and U.S. Bond Pricing," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 17(2), pages 21-36, June.
    • Handle: RePEc:pal:jintbs:v:17:y:1986:i:2:p:21-36
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    Citations

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    Cited by:

    1. Juan Carlos Gozzi & Ross Levine & Maria Soledad Martinez Peria & Sergio L. Schmukler, 2012. "How Firms Use Domestic and International Corporate Bond Markets," NBER Working Papers 17763, National Bureau of Economic Research, Inc.
    2. Harald Uhlig & Fiorella De Fiore, 2005. "Bank Finance versus Bond Finance: What Explains the Differences Between US and Europe?," 2005 Meeting Papers 618, Society for Economic Dynamics.
    3. Fiorella De Fiore & Harald Uhlig, 2011. "Bank Finance versus Bond Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1399-1421, October.
    4. Jeffrey A. Frankel & Saburo Okita & Peter G. Peterson & James R. Schlesinger, 1988. "International Capital Flows and Domestic Economic Policies," NBER Chapters, in: The United States in the World Economy, pages 559-658, National Bureau of Economic Research, Inc.
    5. Gozzi, Juan Carlos & Levine, Ross & Martinez Peria, Maria Soledad & Schmukler, Sergio L., 2015. "How firms use corporate bond markets under financial globalization," Journal of Banking & Finance, Elsevier, vol. 58(C), pages 532-551.
    6. Miller, Darius P. & Puthenpurackal, John J., 2002. "The Costs, Wealth Effects, and Determinants of International Capital Raising: Evidence from Public Yankee Bonds," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 455-485, October.
    7. Dimic, Nebojsa & Orlov, Vitaly & Piljak, Vanja, 2022. "First offshore bond issuances and firm valuation," International Review of Financial Analysis, Elsevier, vol. 83(C).
    8. Athanassakos, George & Schnabel, Jacques A., 1996. "Stockholder wealth effects of Eurobond financing: A Canadian perspective," Global Finance Journal, Elsevier, vol. 7(2), pages 191-208.
    9. Fiorella De Fiore & Harald Uhlig, 2011. "Bank Finance versus Bond Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1399-1421, October.
    10. Darius P. Miller & John J. Puthenpurackal, 2001. "The Costs, Wealth Effects, and Determinants of International Capital Raising: Evidence from Public Yankee Bonds," William Davidson Institute Working Papers Series 445, William Davidson Institute at the University of Michigan.
    11. A. D. Cosh & Alan Hughes & Ajit Singh, 1989. "Openness, Innovation and Share Ownership: The Changing Structure of Financial Markets," WIDER Working Paper Series wp-1989-074, World Institute for Development Economic Research (UNU-WIDER).

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