An Examination of the Biases in Estimating the Benefit of Debt Insurance |
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Authors: | L Paul Hsueh Y Angela Liu |
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Institution: | University of Central Florida, Orlando, FL 32816-0991. The authors acknowledge and appreciate the helpful comments and suggestions made by the two anonymous referees of this journal. |
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Abstract: | This paper examines the biases in previous studies of estimating the benefit of debt insurance. We identify three possible sources of estimation biases: selection bias, marketability bias, and premium bias. Our findings indicate that both the selection bias and the marketability bias cause an underestimation of the actual benefit of bond insurance, while the premium bias results in an overestimation. Future research could benefit from this study by explicitly accounting for these estimating biases in obtaining a more accurate evaluation of the role of debt insurance in the market. |
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