by Christopher Paul Lin
Abstract
Interest rate swaps are financial derivatives that allow people to speculate on
interest rates or hedge certain interest rate exposures. Corporations, in particular, can use
the swap market to effectively change fixed rate debt into floating rate debt or vice versa.
This paper empirically tests whether debt issuance by financial firms has a measurable
effect on the relative pricing of swaps in the market. I hypothesize that upon issuing debt,
these corporations enter into pay-floating, receive-fixed swaps which, ceteris paribus,
would decrease the swap spread. I find that in some cases debt issuance does have a
statistically significant tightening effect.
Professor Edward Tower, Faculty Advisor
