Municipal Bond Insurance: Trends and Prospects
24 Pages Posted: 20 Feb 2003
Privately sold bond insurance is the most common form of credit enhancement for municipal bonds. Research generally finds that bond insurance reduces interest costs for lower rated, long-term debt issues. Researchers have concluded that these results are consistent with presumed investor risk aversion, as well as more "rational" risk management behaviors, and with theories concerning the efficiency-enhancing properties of financial intermediation in imperfect markets. We propose a research agenda based both on traditional theories and on additional hypotheses that seek to account for the observed use of bond insurance where net savings would not normally be predicted.
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