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Skin in the game: The Performance of Insured and Uninsured Municipal Debt

Author

Listed:
  • Daniel Bergstresser

    (Brandeis University)

  • Randolph Cohen

    (Massachusetts Institute of Technology, Definitive Capital)

  • Siddharth Shenai

    (Bracebridge Capital)

Abstract

The period since 1989 has seen significant changes in the structure of household ownership of municipal debt, with ownership becoming concentrated in a smaller number of households over time. The share of households holding any municipal debt fell from 4.6 percent to 2.4 percent between 1989 and 2013. The share of total debt that is held by the wealthiest 0.5 percent of households rose from 24 percent to 42 percent over the same period. These changes have coincided with the growth of tax-deferred retirement investment accounts such as 401(k) plans as a primary location of household investing. Municipal bonds, which pay tax-exempt interest, are almost never held inside of these tax-deferred accounts. These changing patterns of ownership have implications for the political economy of the municipal bond market.

Suggested Citation

  • Daniel Bergstresser & Randolph Cohen & Siddharth Shenai, 2015. "Skin in the game: The Performance of Insured and Uninsured Municipal Debt," Working Papers 88, Brandeis University, Department of Economics and International Business School.
    • Handle: RePEc:brd:wpaper:88
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    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP88.pdf
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Ashcraft, A. & Goldsmith-Pinkham, P. & Vickery, J., 2010. "MBS Ratings and the Mortgage Credit Boom," Other publications TiSEM 5da00f7a-44c3-4829-903c-d, Tilburg University, School of Economics and Management.
    2. Christo A. Pirinsky & Qinghai Wang, 2011. "Market Segmentation and the Cost of Capital in a Domestic Market: Evidence from Municipal Bonds," Financial Management, Financial Management Association International, vol. 40(2), pages 455-481, June.
    3. repec:bla:jfinan:v:59:y:2004:i:5:p:2253-2280 is not listed on IDEAS
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    Cited by:

    1. Albert Lee Chun & Ethan Namvar & Xiaoxia Ye & Fan Yu, 2019. "Modeling Municipal Yields With (and Without) Bond Insurance," Management Science, INFORMS, vol. 65(8), pages 3694-3713, August.
    2. Natee Amornsiripanitch, 2022. "Bond Insurance and Public Sector Employment," Working Papers 22-03, Federal Reserve Bank of Philadelphia.
    3. Agrawal, Ashwini & Kim, Daniel, 2021. "Municipal bond insurance and the U.S. drinking water crisis," LSE Research Online Documents on Economics 118888, London School of Economics and Political Science, LSE Library.
    4. Cornaggia, Kimberly & Hund, John & Nguyen, Giang, 2022. "Investor attention and municipal bond returns," Journal of Financial Markets, Elsevier, vol. 60(C).
    5. Amornsiripanitch, Natee, 2022. "The real effects of municipal bond insurance market disruptions11This paper was previous circulated with the title “Bond Insurance and Public Sector Employment.” I thank Gary Gorton, Andrew Metrick, H," Journal of Corporate Finance, Elsevier, vol. 75(C).
    6. Jess N. Cornaggia & Kimberly J. Cornaggia & Ryan D. Israelsen, 2020. "Where the Heart Is: Information Production and the Home Bias," Management Science, INFORMS, vol. 66(12), pages 5532-5557, December.

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    Keywords

    Municipal bonds; bond insurance;

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