Prices of deep discount bonds and the Revenue Act of 1978: An evaluation of market response |
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Authors: | Donald R Fraser RMalcolm Richards |
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Abstract: | This article explores the market response of deep discount corporate bonds to the reduction in the capital gains tax rate incorporated into the Revenue Act of 1978. Such tax change should have increased the desirability of assets acquired for capital gains potential, such as deep discount bonds. Examining a time series of prices and returns for a sample of deep discount corporate bonds and a control group of comparable duration and credit risk corporate bonds selling at or near par did indeed provide evidence of a market price reaction. Moreover, the price changes for the deep discount bonds occurred well in advance of the implementation of the tax change. |
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Keywords: | Address reprint requests to Dr R Malcolm Richards Department of Finance College of Business Administration Texas A&M University College Station TX 77843 USA |
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