The Impact of Default Risk Insurer’s Financial Distress on Insured Municipal Bonds

Chris Brune and Pu Liu

Municipal Finance Journal, 2011, vol. 32, issue 3, 19 - 36

Abstract: A key element in the effectiveness of municipal bond insurance is the financial stability of the insurer. This paper examines the impact on insured municipal bonds of a decline in the financial strength of an insurer. Results show that risk premiums increase after the financial stability of the insurer weakens. The effect is most pronounced for revenue bonds with low underlying ratings. Interestingly, bonds insured by companies other than the one whose stability was diluted are also affected. The results thus show a contagion effect in the insured municipal bond market.

Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dx.doi.org/10.1086/MFJ32030019 (application/pdf)
http://dx.doi.org/10.1086/MFJ32030019 (text/html)
Access to the online full text or PDF requires a subscription.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ucp:munifj:doi:10.1086/mfj32030019

Access Statistics for this article

More articles in Municipal Finance Journal from University of Chicago Press
Bibliographic data for series maintained by Journals Division ().