Plausibly Exogenous [1438] - Municipal Bonds (01/08/2024)
LHS Variable
Municipal Bonds
RHS Variable
Default Risk
Source of Exogenous Variation
Municipal bond issuers commonly pre-refund bonds before the call date by issuing new debt and holding the proceeds in a trust to fund remaining payments until the call date, effectively rendering the pre-refunded bond risk-free (Fischer (1983), Chalmers (1998)).
- Schwert (2017), “Municipal bond liquidity and default risk”