HEDGING FIXED-RATE PREFERRED STOCK INVESTMENTS
Corporations seeking to maximize the return on their cash reserve resources have an incentive to invest in traditional preferred stock because of their right to exclude 70% of the dividends from taxation. Nevertheless, fixed-rate preferred stock investments may contribute significantly to the return volatility of a cash portfolio and cause unacceptable losses to the corporate investors. As a result, many corporations might consider such higher-return investments only if they can hedge away a sufficient amount of risk. The research presented in this article seeks to evaluate how much of the return variation of fixed-rate preferred equity portfolios can be reduced with various hedging strategies. 2001 Morgan Stanley.
Year of publication: |
2001
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Authors: | Murphy, Austin |
Published in: |
Journal of Applied Corporate Finance. - Morgan Stanley, ISSN 1078-1196. - Vol. 14.2001, 1, p. 80-89
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Publisher: |
Morgan Stanley |
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