The complexity yield puzzle: A textual analysis of municipal bond disclosures

Arbeitspapier

We study the effect of official statement textual complexity on municipal borrowing costs (yield) through the clientele channel. Theoretically, complexity reduces signal quality for unsophisticated investors, potentially increasing yield. We provide causal evidence of an economically significant complexity-yield premium that is especially large for issues with greater tax-induced exogenous demand from unsophisticated investors or less complementary information from rating agencies. We decompose complexity into multiple topics and find that "legal complexity" matters most for the complexityyield premium. Despite this premium, complexity has been trending upward across all credit categories. This trend is attributable to increased regulatory enforcement from the SEC.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: New Working Paper Series ; No. 338

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading ; General Financial Markets: Government Policy and Regulation ; State and Local Borrowing
• Thema: municipal bonds ; disclosure ; complexity ; textual analysis ; clientele

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Farrell, Michael ; Murphy, Dermot ; Painter, Marcus ; Zhang, Guangli
• Ereignis: Veröffentlichung
• (wer): University of Chicago Booth School of Business, Stigler Center for the Study of the Economy and the State
• (wo): Chicago, IL
• (wann): 2023

Weitere Informationen

• Handle: http://hdl.handle.net/10419/279822
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ