Leverage and Closed End Bond Funds

Journal of Fixed Income. v24(4). pp. 47-59. 2015.

https://doi.org/10.3905/jfi.2015.24.4.047

Posted: 21 May 2019

See all articles by Stephen Szaura

Stephen Szaura

McGill University - Desautels Faculty of Management

Phelim P. Boyle

Wilfrid Laurier University - School of Business & Economics; University of Waterloo

Date Written: May 9, 2014

Abstract

The performance of a closed end bond fund is based on the returns of an underlying portfolio of bonds. This paper uses a structural model to assess the impact of leverage on the expected return and riskiness of a closed end bond fund. We use the model to explore the role of leverage during the financial crisis. Our model indicates that during the worst extremes of the financial crisis the debt of closed end bond funds had virtually no default risk and that the funding problems stemmed from a defective funding vehicle.

Keywords: Closed end bond funds, leverage

JEL Classification: G01, G12, G20

Suggested Citation

Szaura, Stephen and Boyle, Phelim P., Leverage and Closed End Bond Funds (May 9, 2014). Journal of Fixed Income. v24(4). pp. 47-59. 2015.. Available at SSRN: https://ssrn.com/abstract=2435312

Stephen Szaura (Contact Author)

McGill University - Desautels Faculty of Management ( email )

1001 Sherbrooke St. West
Montreal, Quebec H3A1G5 H3A 2M1
Canada

Phelim P. Boyle

Wilfrid Laurier University - School of Business & Economics ( email )

Waterloo, Ontario N2L 3C5
Canada
519 884 1970 (Phone)
519 888 1015 (Fax)

University of Waterloo

Waterloo, Ontario N2L 3G1
Canada

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