Adjustable Rate Preferred Stock

Abstract

The introduction and continuing innovation of adjustable rate preferred stock is discussed in light of institutional, regulatory and tax considerations. The observe volatility in the market prices of these securities is explained by the caps on their dividend re-set formulas and by the changing credit-worthiness of their issuers. An econometric model is developed which explains 76 percent of the variation in the market prices of seasoned issues and which is reasonably stable across time and across issuers.