• Media type: E-Article
  • Title: An Experimental Analysis of Contingent Capital with Market-Price Triggers
  • Contributor: DAVIS, DOUGLAS; KORENOK, OLEG; PRESCOTT, EDWARD SIMPSON
  • Published: Wiley Subscription Services, 2014
  • Published in: Journal of Money, Credit and Banking, 46 (2014) 5, Seite 999-1033
  • Language: English
  • DOI: 10.1111/jmcb.12132
  • ISSN: 1538-4616; 0022-2879
  • Origination:
  • Footnote:
  • Description: We report an experiment that evaluates three market-based regimes for triggering the conversion of contingent capital bonds into equity: a "fixedtrigger" regime, where a price threshold triggers mandatory conversion; a "regulator" regime, where regulators make conversion decisions based on prices; and a "prediction market" regime, where regulators also observe a market that predicts conversion. Consistent with theory, we observe inefficiencies and conversion errors in the fixed-trigger and regulator regimes. The prediction market somewhat improves the regulator's performance, but inefficiencies and conversion errors persist. The regulator regime has conversion errors over the widest range of shocks.