An Empirical Test of the Incentive Effects of Deposit Insurance: The Case of Junk Bonds at Savings and Loan Associations

Brewer, Elijah, and Thomas H Mondschean

Journal of Money, Credit and Banking, 1994, vol. 26, issue 1, 146-64

Abstract: This paper analyzes how financial markets reacted to S&L diversification into junk bonds. The authors report that junk bond holdings are positively correlated with both the volatility of S&L equity returns and the interest rates paid on large CDs. Next, they examine the impact of junk bonds on equity returns. For poorly capitalized S&Ls, greater risk taking increases the value of deposit insurance and should lead to higher stock returns. However, a well-capitalized institution that increases junk bond holdings should not experience stock price gains. The authors find that this is the case for the sample of S&Ls they studied. Copyright 1994 by Ohio State University Press.

Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-2879%2819940 ... 0.CO%3B2-O&origin=bc full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

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:mcb:jmoncb:v:26:y:1994:i:1:p:146-64

Access Statistics for this article

Journal of Money, Credit and Banking is currently edited by Robert deYoung, Paul Evans, Pok-Sang Lam and Kenneth D. West

More articles in Journal of Money, Credit and Banking from Blackwell Publishing
Bibliographic data for series maintained by Wiley-Blackwell Digital Licensing () and Christopher F. Baum ().