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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.