Research / Research Papers

The Risks of Preferred Stock Portfolios

2010-06-02

Preferred stocks are a hybrid of debt and equity. In this paper, we examine preferred stocks with an emphasis on the risks of holding portfolios of preferred stocks. We demonstrate that preferred stocks are similar to debt when the issuing company is financially healthy, and become more similar to equity when the company's financial condition deteriorates. We show that issuers of preferred stocks are heavily concentrated in the financial services industry, a fact that exposes investors who hold a portfolio concentrated in preferred stocks to further risk - industry concentration risk. We illustrate the features of preferred stocks using the Fannie Mae 2008 issuance as a case study.

Recent Award
- Jenkins v Crowell Weedon - $51,807 Preferred Stock Award

By Guohua Li, Craig McCann, and Edward O'Neal

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Craig J. McCann
Principal703.246.9381
Eddie O'Neal
Principal336.655.8718