Robert E. Lamy

Risk premia and the pricing of primary issue bonds

Abstract Researchers investigating the impact of various economic or regulatory changes on debt securities have generally employed two types of bond pricing models: the absolute yield or the relative yield model. This paper explores the behavioral implications of these two models and provides a theoretical and empirical examination of the contrasting specifications. Evidence is presented that suggests the relative yield model to be the more appropriate specification.

Regional reciprocal interstate banking: The Supreme Court and the resolution of uncertainty

Abstract In 1985, the Supreme Court affirmed the ability of the states to enter into regional reciprocal compacts in Northeast Bancorp, Inc., et al., v. Board of Governors of the Federal Reserve System. The current study tests the hypotheses that the Courts decision exerted a material influence on the wealth of shareholders in bank holding companies (BHCs) operating within regional banking compacts and that shareholder reactions were affected by the size of their BHC as a proxy for the likelihood that a BHC would be an acquiror vs. a target in the new legislative climate. The analysis uses a sample of 52 BHCs that were members of regional interstate banking compacts and a control sample of 107 BHCs based in states that had not passed such enabling legislation as of the event date. Both portfolios of BHCs exhibited a statistically significant average positive reaction to the Supreme Court decision. Further, there is evidence that the average BHC in each group reacted significantly differently to that event. The reactions of BHCs in regional compacts were associated negatively with their relative size within their respective regional compact but related positively to their absolute size. Interestingly, the reactions of BHCs in the control sample were also negatively associated with their relative size within their home offices state but also positively related to their absolute size. All in all, shareholders viewed the interstate banking opportunities brought by the Supreme Court decision to be consistent with their interests.

Agency Costs and Alternative Call Provisions: An Empirical Investigation

a The question of the appropriate call protection for a bond issue has recently attracted substantial attention. This question centers on the choice between offering the investor protection against redemption for any reason and offering protection against refunding the issue with lower cost debt. This paper investigates the influence of this decision on the reoffering yields of primary issue corporate bonds. Several explanations have been offered for the firms decision to attach call protection to its bond issue. Much of the earlier work addresses interest rate