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Using a system of equations approach, this paper empirically tests the impact of credit quality, asset maturity, and other issuer and issue characteristics on the maturity of municipal bonds. We find that under conditions of lower information asymmetry that prevails in the municipal sector, higher-rated bonds have longer maturities than low-rated bonds. This result differs from that observed in the corporate sector. Overall, our results support the asset maturity hypothesis. In addition, our analysis finds that fundamentals matter. Issue features that provide additional protection or convenience to the investor tend to increase debt maturity. Copyright (c) 2010, The Eastern Finance Association.

This article analyses stock market reactions to election polls. Stock markets anticipate the impact of events on future cash flows. Current values depend on future cash flows and risk prospects. We posit that election polls are indications of the political platforms that are expected to win elections. Given the traditional philosophical differences between the Republican and the Democratic Parties, and the specific campaign promises of the US presidential candidates in the 2008 election, we hypothesize that stock market reacts negatively to the prospect of Barack Obama winning the election. We test this hypothesis by relating daily stock index returns to a lag value of differences in election polls that show Obama's advantage over John McCain. The results consistently show that stock market reacts negatively (positively) when Obama (McCain) has poll advantage over McCain (Obama). We conclude that there are differences in perception between Main Street and Wall Street.

Problem statement:There is a significant difference between the interest rates on the GO and the RV municipal bonds. We sought explanation for this difference in differences in information asymmetry between the two types of municipal bonds. GO bonds finance general municipality expenditures and repayment is from general tax revenues. RV bonds finance special projects and repayment is from cash flows of the special projects. These projects are assumed to be more asymmetric than the general municipality tax revenues. Previous studies examined this issue but did not explicitly consider the information asymmetry differences. Approach: We used issue transaction spread as a proxy for information asymmetry. Average spread for RV bonds is 1.172% while that for GO bonds is 0.892%. We controlled for external economic factors, issue and issuer features and contractual terms that might affect yield on debt. We used two-step regression analyses to explain yields on the two types of municipal bonds. Results: RV bonds cost 74 basis points more on the average than GO bonds. After controlling for external economic factors, issue and issuer features and contract terms, the difference shrank to an average of 44 basis points. Issue transaction spread, our proxy for information asymmetry and credit rating were important determinants of bond yields. Conclusion/Recommendations: Issue transaction spread, as a proxy for information asymmetry, explained differences in bond yields. Other variables that affect yield differences were credit rating, maturity, economic activities, contract terms and other issue and issuer features. Still, there remained an unexplained difference in the yields between RV and GO bonds of 44 basis points that we left for further research. This difference was inversely related to the credit rating of the bond.

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