@article{0a6826306fa24bd4a45dc479655042dc,
title = "Investor attention and municipal bond returns",
abstract = "We analyze whether investors in opaque markets price information from more transparent markets. Exploiting the natural experiment created by bond-insurer insolvency, we show that U.S. municipal bond investors did not price early signs of insurers{\textquoteright} increased default risk revealed through the equity and CDS markets, and only reacted when these insurers were later downgraded. Institutional investors respond to information faster than retail investors, but still with significant delay. The severity of the investor inattention we document is relevant to the current debate over the costs and benefits of SEC proposals to improve the timeliness and quality of local government disclosure.",
author = "Kimberly Cornaggia and John Hund and Giang Nguyen",
note = "Funding Information: We thank Ryan Israelsen and Marc Joffe for comprehensive historical municipal bond ratings, Brent Ambrose, Dan Bergstresser, Sam Bonsall, Alon Brav, Jess Cornaggia, Edward Grebeck, Yesol Huh, Pab Jotikasthira, former SEC Chief Economist S.P. Kothari, Spencer Martin, Dermot Murphy, Anh Le, Liang Peng, SEC Commissioner Michael Piwowar, Richard Ryffel, Michael Schwert, Syrena Shirley, Tim Simin, Bruce Stern, Liz Sweeney, Charles Trzcinka, Bradley Wendt, Sean Wilkoff, and audience members at the Federal Reserve Board, Penn State University, University of Georgia, the Michigan State University Federal Credit Union Conference on Financial Institutions and Investments, the United States Securities and Exchange Commission, the 2018 Brookings Municipal Finance Conference, and the 2018 Women in Microstructure meeting for helpful comments and insights. We also thank Brian Gibbons, Dan McKeever, and Zihan Ye for research assistance. Publisher Copyright: {\textcopyright} 2022 Elsevier B.V.",
year = "2022",
month = sep,
doi = "10.1016/j.finmar.2022.100738",
language = "English (US)",
volume = "60",
journal = "Journal of Financial Markets",
issn = "1386-4181",
publisher = "Elsevier B.V.",
}