Skip to:
  1. Main navigation
  2. Main content
  3. Footer
Working Paper

Financial Innovations and Issuer Sophistication in Municipal Securities Markets

Download pdf
When local governments default or file for bankruptcy, it is often because public officials misunderstood the risks associated with innovative financial products. If unsophisticated municipal bond issuers were to widely adopt a high risk financial product, this could harm taxpayers and investors, as well as destabilize the financial system. This analysis uses municipal bond issuers’ total debt outstanding as a proxy for their sophistication and investigates the relationship between sophistication and adoption of financial innovations. Using comprehensive data on securities issued between 1992 and 2012, 25 innovations are identified.
Topics
Public finance
06.03.2014ISSN 2573-7953 WP 14-04DOI 10.26509/frbc-wp-201404
Keywords financial innovation, public financial management, municipal bonds
JEL Classification Codes H74, G28, R51

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Whitaker, Stephan D. 2014. “Financial Innovations and Issuer Sophistication in Municipal Securities Markets.” Federal Reserve Bank of Cleveland, Working Paper No. 14-04. https://doi.org/10.26509/frbc-wp-201404