Price distortions and municipal bonds premiums: evidence from Switzerland

Abstract This study examines the pricing of municipal bonds before and after a currency shock in Switzerland. Two approaches are used to decompose treasuries bond spreads into liquidity, maturity, default risk premiums. The first approach is model cross-sectional instrumental variables, second variables with panel data. composition for both approaches, three scenarios: before, throughout, shock. performed Durbin-Wu-Hausman tests each decisive verify endogeneity issues, including Lagrangian Multiplier test, Cragg-Donald Wald F statistic confirm relationship endogenous structural break test (Bai-Perron test) determine existence breaks distortions. finds that price distortions Swiss franc January 2015 made long-run changes spreads. research contributes understanding by showing accounts large portion spread, while maturity plays lesser role. According our empirical findings, unexpected shocks may have long-term implications on