This study examines whether the financial health of municipal bond investors can affect the municipal bond yield by especially focusing on the liquidity component. We find that the deterioration of the financial health of bond investors widens the liquidity spread of municipal bonds, and this...

We analyze the extent to which investors in opaque markets price information from more transparent markets. Exploiting the natural experiment created by bond-insurer insolvency, we show that municipal bond investors ignore insurers' equity prices and CDS premia, yet react to insurers'...

This paper documents that momentum profits in corporate bonds prevail during weakening aggregate credit conditions, and are driven by losers. Consistent with this, we find that a conditional default factor explains the cross-section returns of corporate bond portfolios sorted by past...

Most tests of preferred habitat theory are indirect; they infer the existence of preferred habitat behaviour in financial markets by examining the behaviour of asset prices. We instead identify preferred habitat behaviour directly from whether investors show a preference towards a particular...

Sovereign debt restructurings are perceived as inflicting large losses to bondholders.However, many bonds feature high coupons and often exhibit strong post-crisis recoveries. To account for these aspects, we analyze the long-term returns of sovereign bonds during 32 crises since 1998, taking...

The perspective of behavioral finance is that anomalies in the cross-section of returns are driven by mispricing that arises from investor irrationality that cannot be easily arbitraged away. In this study, we examine the implications of this for international government bond markets. Using data...

This paper investigates the sensitivity of the demand for safe government debt to currency unhedged and hedged excess returns in a sample of US mutual funds. We find evidence of active rebalancing towards government bonds that offer relatively higher returns on an unhedged basis, in particular...

This paper studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon...