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The Relative Pricing of High-Yield Debt: The Case of RJR Nabisco Holdings Capital Corporation

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  • Dammon, Robert M
  • Dunn, Kenneth B
  • Spatt, Chester S

Abstract

The authors derive and investigate empirically arbitrage pricing restrictions among three bonds of RJR Nabisco Holdings Capital Corporation. The three RJR bonds are virtually identical in all respects except for the form in which interest is paid. The authors document large and persistent errors in the market pricing of the three bonds over a two-year period. The cash-paying bond was consistently more expensive than either the pay-in-kind or deferred-coupon bonds. The magnitude of the pricing errors is too large to be explained by market imperfections. Copyright 1993 by American Economic Association.

Suggested Citation

  • Dammon, Robert M & Dunn, Kenneth B & Spatt, Chester S, 1993. "The Relative Pricing of High-Yield Debt: The Case of RJR Nabisco Holdings Capital Corporation," American Economic Review, American Economic Association, vol. 83(5), pages 1090-1111, December.
    • Handle: RePEc:aea:aecrev:v:83:y:1993:i:5:p:1090-1111
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    Cited by:

    1. James Angel & Douglas McCabe, 2015. "The Ethics of Payments: Paper, Plastic, or Bitcoin?," Journal of Business Ethics, Springer, vol. 132(3), pages 603-611, December.
    2. Mark Mitchell & Todd Pulvino & Erik Stafford, 2002. "Limited Arbitrage in Equity Markets," Journal of Finance, American Finance Association, vol. 57(2), pages 551-584, April.
    3. Corvino, Raffaele & Ruggiero, Francesco, 2021. "The relative pricing of sovereign credit risk after the Eurozone crisis," Journal of International Money and Finance, Elsevier, vol. 112(C).
    4. Marshall, Ben R., 2009. "How quickly is temporary market inefficiency removed?," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 917-930, August.
    5. David, Alexander, 2001. "Pricing the strategic value of putable securities in liquidity crises," Journal of Financial Economics, Elsevier, vol. 59(1), pages 63-99, January.
    6. Cao, Xiaping & Chan, Konan & Kahle, Kathleen, 2018. "Risk and performance of bonds sponsored by private equity firms," Journal of Banking & Finance, Elsevier, vol. 93(C), pages 41-53.

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