Pricing Those Pesky CACs

Do the legal provisions in a bond affect its price? If law matters then, at least in an efficient market, one would think the answer would be yes. Weirdly, lawyers often scoff at this idea, even though they are implicitly suggesting their work does not matter. But the empirical question remains. There has been extensive research on the pricing impact of Collective Action Clauses (CACs), with conflicting findings. We talk to financial economists Elena Carletti, Paolo Colla, and Steven Ongena about their recent studies of CAC pricing with one of us. Link to recent paper below.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2817041

Producer: Leanna Doty