A HISTORICAL PERSPECTIVE ON DUTCH AUCTION RATE PREFERRED STOCK

Lynda S. Livingston

Accounting & Taxation, 2010, vol. 2, issue 1, 1-20

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.

Keywords: Preferred Stock; Auction; Dividends Received Deduction (search for similar items in EconPapers)
JEL-codes: G01 G32 K34 (search for similar items in EconPapers)
Date: 2010
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