Measuring a Tax-Specific Term Structure of Interest Rates in the Market for British Government Securities

Schaefer, Stephen M.

doi:10.2307/2232594

Cited by 134 publications

(82 citation statements)

References 14 publications

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“…Academic approaches to adjusting for tax effects have either estimated a single representative ("effective") tax rate covering all bonds and all maturities (following McCulloch (1975» or have constructed aseries of tenn structures from subsets of bonds which are efficiently held by "rational" investors with particular tax rates (following Schaefer (1981». As to the former approach, it is unclear what the "effective" tax rate actually represents, presumably a kind of average tax rate faced by all investors, which would not accurately capture the tax effect across different classes of investors. 'Tbe latter approach is difficult to implement in practice, especially for intemationally traded bonds.…”

Section: Nelsonlsiegel and Svenssonmentioning

confidence: 99%

Alternative Specifications of the German Term Structure and Its' Information Content Regarding Inflation

Schich

1996

SSRN Journal

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Section: Nelsonlsiegel and Svenssonmentioning

confidence: 99%

Alternative Specifications of the German Term Structure and Its' Information Content Regarding Inflation

Schich

1996

SSRN Journal

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“…Although several models such as Carleton and Cooper (1976), Schaefer (1981), Vasichek and Fong (1982), Chambers, Carleton and Waldman (1984), Mastronikola (1991) …”

Section: Estimating the Riskless Term Structure Of Interest Ratesmentioning

confidence: 99%

Sovereign Debt and the Cost of Migration: India 1990-1992

Clark

Lakshmi

2003

SSRN Journal

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In this paper we look at the Indian financial crisis of 1990-1992 that included three credit rating downgrades of two notches each in the short space of 9 months. We measure to what extent India's financial difficulties were the result of conditions prevailing on the international capital markets at the time, reflected in changes in the risk free international term structure of interest rates, and to what extent they were linked to credit risk specific to the country's political environment and its economic and financial management as reflected in the three ranking migrations. 1 We find that most of the changes in Indian Eurobond prices over the period were due to conditions on the international capital markets. Migration effects were surprisingly small. Interestingly, our results show that there are no maturity, currency or bond specific effects of migration on percentage changes in the bond prices. However, when we measure the cost of migration in terms of basis points on the yield to maturity, we find that migration is relatively more costly for shorter maturities. Averaging over all bonds, the first migration added about 106 basis points to the bonds' yields to maturity while the third migration added about 42. The second migration was very small and not statistically significant, indicating that it was anticipated by the markets and priced in the first downgrade.JEL Classification: 0530, 0160, G150, P330, F340

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“…On the other hand, the use of only a few knots produces a …t that may be too smooth, resulting in larger …tting errors. Thus, 21 Other approaches include Bernstein polynomials employed by Schaefer (1981) and Laguerre polynomials suggested by Nelson and Siegel (1987). there is a trade-o¤ between the smoothness of the function and the …tting errors. Hence, the choice of the number of knot points is analogous to the number of independent variables in a regression.…”

mentioning

confidence: 99%

“…Such a market is characterized by a tax-bracket-speci…c term structure. For instance, in a study of the U.K. gilt market, Schaefer (1981) uses the linear programming technique to identify optimal portfolios for investors with speci…c tax rates.…”

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Coupon Effects and the Pricing of Japanese Government Bonds An Empirical Analysis

1998

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Abstract:In many markets, the term structure of interest rates implied by coupon Treasury bonds provides a key input for pricing and hedging interest rate-sensitive securities. Previous studies in the Japanese market, however, suggest that the prices of the Japanese Government Bonds (JGB's) were signi…cantly a¤ected by regulatory and liquidity factors. Consequently, it has been argued that term structure modelling in the Japanese context based on interest rate factors could lead to misleading results. Since the previous studies, there have been signi…cant structural changes in the regulatory environment, and in the liquidity of the Japanese bond market in the 1990's. In this light, we examine the e¤ect of these changes on the JGB prices during the period between 1990 and 1996, by analyzing the term structure of interest rates in the JGB market over time. Speci…cally, we use the B-spline method to …t the term structure of interest rates using weekly prices of "non-benchmark" ten-year JGB's. We also use a non-linear econometric model to examine the signi…cance of the "coupon" e¤ects, which are the results of regulatory, accounting and liquidity factors.Our empirical analysis shows that it is possible to closely …t the term structure of interest rates in the JGB market, with …tted price errors only slightly larger than those found in similar studies of the U.S. Treasury bond market. Furthermore, the …tted price errors diminish over our sample period, suggesting that the e¤ect of non-present value factors became somewhat muted over time. Our empirical results also indicate that the coupon of a bond in the JGB market has a highly nonlinear e¤ect on the prices due to the "par-bond" e¤ect and the "high-coupon" e¤ect, although the "par-bond" e¤ect is more pronounced in the recent period. Further analysis shows that three factors (level, slope and curvature) explain a substantial proportion of the variation in the JGB spot rates, as in the case of the U.S. Treasury market. Overall, these results indicate that the e¢ ciency of the JGB markets has improved over time. Hence, the time-series movement of the JGB's can be captured to a substantial degree by common interest rate factors, although care should be taken to incorporate the special characteristics of individual bonds.Coupon E¤ects and the Pricing of Japanese Government Bonds

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Measuring a Tax-Specific Term Structure of Interest Rates in the Market for British Government Securities

Cited by 134 publications

References 14 publications

Alternative Specifications of the German Term Structure and Its' Information Content Regarding Inflation

Alternative Specifications of the German Term Structure and Its' Information Content Regarding Inflation

Sovereign Debt and the Cost of Migration: India 1990-1992

Coupon Effects and the Pricing of Japanese Government Bonds An Empirical Analysis

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