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Was the tax-exempt bond market inefficient or were future expected tax rates negative?

Article Abstract:

This paper shows that the sharp narrowing with maturity of the spread between taxable and tax-exempt yields leaves room for tax arbitrage. At times, tax-exempt forward rates have exceeded taxable forward rates. At such times. only expectations of higher taxes on Treasury than on municipal bonds would, eliminate profit opportunities. The authors develop the idea of forward tax rates and compute forward tax rates for 1955 through 1984. They also outline tax-arbitrage mechanisms involving private forward sale of long municipal bonds or the use of the Municipal Bond Futures Contract and show the potential profits. (Reprinted by permission of the publisher.)

Taxation, Tax research, Credit market, Credit markets

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Testing rationality in the point spread betting market

Article Abstract:

This paper presents empirical tests of market rationality using data from the point spread betting market on National Football League games. Data from this market avoid many common pitfalls of tests of rationality in conventional financial markets. The authors test for rationality with two types of tests, statistical and economic. Results of the tests reveal that the statistical tests cannot reject market rationality while the economic tests do reject market rationality. (Reprinted by permission of the publisher.)

Research, Financial markets, National Football League

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