Title

A Historical Perspective On Dutch Auction Rate Preferred Stock

Document Type

Article

Publication Date

1-1-2010

Publication Title

Accounting & Taxation

Department

Business and Leadership

Abstract

In February of 2008, the $330 billion auction-rate security market began to fall apart. Brokerage houses that managed the periodic auctions refused to support their issues, so that auctions failed and liquidity disappeared. Investors had a wake-up call: an asset they had thought was a money-market equivalent was in fact something much more risky. In this paper, we consider this current meltdown in light of the 1980s history of Dutch Auction Rate Preferred Stock (DARPS). We conclude that a significant contributor to the recent problems was the marketing of DARPS to individuals, when the security was designed for corporate investors.

Volume

2

Issue

1

pp.

1-20

ISSN

1944-592X

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