TY - JOUR T1 - Corporate Retail Notes: <em>A Good Alternative</em> <br/> <em>for Individual Investors?</em> JF - The Journal of Fixed Income SP - 82 LP - 97 DO - 10.3905/jfi.2013.23.2.082 VL - 23 IS - 2 AU - Igor Kozhanov AU - Joseph P. Ogden Y1 - 2013/09/30 UR - https://pm-research.com/content/23/2/82.abstract N2 - This article initially describes the market for corporate retail notes (RNs)—debt securities issued directly to individuals (“retail” investors) through brokers, in small denominations ($1,000) and generally on a weekly basis. RNs became popular in the 2000s, although only a few well-known industrial and financial firms issue them. The authors then examine a sample of 1,775 new RNs issued by industrial firms from 2005–2009. Nearly all have an investment-grade credit rating. All RNs include a “death put” provision, and most are callable at par value. After comparing yields on new RNs with seasoned corporate-bond benchmarks, however, the authors find no evidence that investors are compensated for the value (to the issuer) of the call provision. On average, RNs underperform benchmarks at all investment horizons up to two years, and performance is worse for callable RNs, the majority of which are called soon after deferment-period expiration. It is unlikely that these results can be explained by higher secondary-market liquidity. By purchasing new RNs, however, individual investors can avoid transaction costs on mainstream corporate bonds. In addition, individual investors may place a high personal value on the death put provision.TOPICS: Fixed income and structured finance, options, performance measurement ER -