YIELD VOLATILITY OF DISCOUNT COUPON BONDS

In this research, the yield volatility of coupon-taxable discount bonds is analyzed. The relationship of before-tax yield changes on discounts as compared with changes in new, par issue (market) yields is developed in the form of a net yield factor (NYF). Also, the behavior of the NYF as dependent upon parameters such as maturity, coupon, market yield, and tax rates is examined. Then, the incorporation and impact of the NYF on price volatility are shown. Finally, results of empirical tests are reported, which validate the usefulness of NYFs in the measurement of yield volatility for discount bonds.     

TAXES AND THE REFUNDING OF DISCOUNT BONDS

This paper examines the effect of the Bankruptcy Tax Act of 1980 on the decision to refund corporate bonds selling at a discount. Historically, the refunding of discount debt has appeared to be profitable on a discounted cash flow basis. This study demonstrates, however, that the tax effects of the Bankruptcy Tax Act of 1980 have eliminated effectively any potential gains from refunding discounted debt.     

FORECASTING STOCK INDEX VOLATILITY: COMPARING IMPLIED VOLATILITY AND THE INTRADAY HIGH–LOW PRICE RANGE

The intraday high–low price range offers volatility forecasts similarly efficient to high‐quality implied volatility indexes published by the Chicago Board Options Exchange (CBOE) for four stock market indexes: S&P 500, S&P 100, NASDAQ 100, and Dow Jones Industrials. Examination of in‐sample and out‐of‐sample volatility forecasts reveals that neither implied volatility nor intraday high–low range volatility consistently outperforms the other.