Fire Sales and Impediments to Liquidity Provision in the Corporate Bond Market
We examine impediments to liquidity provision by mutual funds to insurance companies during corporate bond fire sales. We find that financial regulation and limited capital capacity significantly affect liquidity provision. Mutual funds reduced their purchase of fire-sale bonds following regulatory...
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| Veröffentlicht in: | Journal of financial and quantitative analysis 2020-12, Vol.55 (8), p.2613-2640 |
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| container_end_page | 2640 |
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| container_title | Journal of financial and quantitative analysis |
| container_volume | 55 |
| creator | Wang, Z. Jay Zhang, Hanjiang Zhang, Xinde |
| description | We examine impediments to liquidity provision by mutual funds to insurance companies during corporate bond fire sales. We find that financial regulation and limited capital capacity significantly affect liquidity provision. Mutual funds reduced their purchase of fire-sale bonds following regulatory changes after the 2008–2009 financial crisis. Funds facing more capital constraints (proxied by smaller cash and Treasury holdings, less liquid corporate bond investments, higher redemption risk, and less active investment styles) provide less liquidity. Mutual funds actively investing in fire-sale bonds earn significant returns from liquidity provision and demonstrate superior overall skills in corporate bond investments. |
| doi_str_mv | 10.1017/S0022109019000991 |
| format | Article |
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Jay ; Zhang, Hanjiang ; Zhang, Xinde</creator><creatorcontrib>Wang, Z. Jay ; Zhang, Hanjiang ; Zhang, Xinde</creatorcontrib><description>We examine impediments to liquidity provision by mutual funds to insurance companies during corporate bond fire sales. We find that financial regulation and limited capital capacity significantly affect liquidity provision. Mutual funds reduced their purchase of fire-sale bonds following regulatory changes after the 2008–2009 financial crisis. Funds facing more capital constraints (proxied by smaller cash and Treasury holdings, less liquid corporate bond investments, higher redemption risk, and less active investment styles) provide less liquidity. Mutual funds actively investing in fire-sale bonds earn significant returns from liquidity provision and demonstrate superior overall skills in corporate bond investments.</description><identifier>ISSN: 0022-1090</identifier><identifier>EISSN: 1756-6916</identifier><identifier>DOI: 10.1017/S0022109019000991</identifier><language>eng</language><publisher>New York, USA: Cambridge University Press</publisher><subject>Anlageverhalten ; Arbitrage ; Betriebliche Liquidität ; Bond markets ; Bond ratings ; Capital ; Corporate bonds ; Costs ; Economic crisis ; Finanzkrise ; Hedge funds ; Insurance companies ; Investment policy ; Investmentfonds ; Investments ; Liquidity ; Mutual funds ; Quantitative analysis ; Redemption ; Regulation of financial institutions ; Regulatory reform ; Regulierung ; Sales ; Unternehmensanleihe ; USA</subject><ispartof>Journal of financial and quantitative analysis, 2020-12, Vol.55 (8), p.2613-2640</ispartof><rights>Copyright © Michael G. 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Mutual funds actively investing in fire-sale bonds earn significant returns from liquidity provision and demonstrate superior overall skills in corporate bond investments.</description><subject>Anlageverhalten</subject><subject>Arbitrage</subject><subject>Betriebliche Liquidität</subject><subject>Bond markets</subject><subject>Bond ratings</subject><subject>Capital</subject><subject>Corporate bonds</subject><subject>Costs</subject><subject>Economic crisis</subject><subject>Finanzkrise</subject><subject>Hedge funds</subject><subject>Insurance companies</subject><subject>Investment policy</subject><subject>Investmentfonds</subject><subject>Investments</subject><subject>Liquidity</subject><subject>Mutual funds</subject><subject>Quantitative analysis</subject><subject>Redemption</subject><subject>Regulation of financial institutions</subject><subject>Regulatory reform</subject><subject>Regulierung</subject><subject>Sales</subject><subject>Unternehmensanleihe</subject><subject>USA</subject><issn>0022-1090</issn><issn>1756-6916</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2020</creationdate><recordtype>article</recordtype><sourceid>ABUWG</sourceid><sourceid>AFKRA</sourceid><sourceid>BENPR</sourceid><sourceid>CCPQU</sourceid><sourceid>DWQXO</sourceid><recordid>eNp9kF1LwzAUhoMoOKc_wAsh4HX1JGlP00sdTgfzA7b7knapZm5Nl2TC_r0ZG-5C9CqQ53nz5hxCLhncMGD57QSAcwYFsAIAioIdkR7LM0ywYHhMelucbPkpOfN-Hp14AT3yMjRO04laaE9VO6OjZadnZqnb4GmwdGxWazMzYUPfnP0y3tiWmpaGD00H1nXWqaDpvY3BZ-U-dTgnJ41aeH2xP_tkOnyYDp6S8evjaHA3TuoMspBInrJGVY1MQfCq0lklslpnBc8kB5kLbHjWNBUoLkFKUICRYIGizjFOKPrkevds5-xqrX0o53bt2thY8lwAInLEf60UcxRM5mm02M6qnfXe6absnFkqtykZlNvdlr92GzN0l9G1bY0_JPKUS4Q0FVG52ilzH6z7MXicAiOOXOxr1bJyZvauD7_7u_gbgbiLrA</recordid><startdate>20201201</startdate><enddate>20201201</enddate><creator>Wang, Z. 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| language | eng |
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| source | Business Source Complete; Cambridge University Press Journals Complete |
| subjects | Anlageverhalten Arbitrage Betriebliche Liquidität Bond markets Bond ratings Capital Corporate bonds Costs Economic crisis Finanzkrise Hedge funds Insurance companies Investment policy Investmentfonds Investments Liquidity Mutual funds Quantitative analysis Redemption Regulation of financial institutions Regulatory reform Regulierung Sales Unternehmensanleihe USA |
| title | Fire Sales and Impediments to Liquidity Provision in the Corporate Bond Market |
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