I like the paper about sunset-driven bond mispricing. It’s an impressively rigorous study.
I would argue, though, that the assumption "no observable fiscal improvement" equals "no difference between investing in the municipalities" is an oversimplification.
It’s very possible that the economic effects of boosted consumption are real and important enough to influence borrowing costs. They just weren’t reflected by coarse fiscal aggregates. But the market spotted them and priced correctly, without myopia.
When we price stocks, we pay attention to which revenue streams drive earnings. So why ignore the composition of municipal revenues?
agree that composition of revenues sometimes matters. However, at the end of the day the total revenues (and subsequent cash flows) are the main drivers of credit risk.
Additionally, the social jet lag effect should have a consequence on the borrowing costs of the municipality.
I like the paper about sunset-driven bond mispricing. It’s an impressively rigorous study.
I would argue, though, that the assumption "no observable fiscal improvement" equals "no difference between investing in the municipalities" is an oversimplification.
It’s very possible that the economic effects of boosted consumption are real and important enough to influence borrowing costs. They just weren’t reflected by coarse fiscal aggregates. But the market spotted them and priced correctly, without myopia.
When we price stocks, we pay attention to which revenue streams drive earnings. So why ignore the composition of municipal revenues?
agree that composition of revenues sometimes matters. However, at the end of the day the total revenues (and subsequent cash flows) are the main drivers of credit risk.
Additionally, the social jet lag effect should have a consequence on the borrowing costs of the municipality.