An Analysis of Percs

Posted: 25 Oct 1999

See all articles by Andrew H. Chen

Andrew H. Chen

affiliation not provided to SSRN

John Kensinger

University of North Texas - Department of Finance, Insurance Real Estate and Law

Hansong Pu

Harvard University - Massachusetts General Hospital

Abstract

This paper examines whether PERCS, Preferred Equity Redemption Cumulative Stocks, have been properly priced with respect to the equivalent packages consisting of longing the common stock and shorting the long-term call option. Test results indicate that PERCS have been overpriced in comparison to the equivalent packages composed of the relevant securities. Further tests on arbitrage restrictions show that transaction costs would prevent arbitrage profits. Investors find PERCS attractive because of the advantages in transaction costs and taxes which PERCS provide.

JEL Classification: G12, G14

Suggested Citation

Chen, Andrew H. and Kensinger, John W. and Pu, Hansong, An Analysis of Percs. Available at SSRN: https://ssrn.com/abstract=5371

Andrew H. Chen (Contact Author)

affiliation not provided to SSRN

John W. Kensinger

University of North Texas - Department of Finance, Insurance Real Estate and Law ( email )

Denton, TX 76203
United States

Hansong Pu

Harvard University - Massachusetts General Hospital ( email )

55 Fruit Street
Boston, MA 02114
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,525
PlumX Metrics