Fire Sales and Liquidity Provision in the Corporate Bond Market

2017 ◽  
Author(s):  
Zhi Jay Wang ◽  
Hanjiang Zhang ◽  
Xinde Zhang
Keyword(s):  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
Fire Sales ◽  
Liquidity Provision

Dealer Liquidity Provision and the Breakdown of the Law of One Price: Evidence from the CDS–Bond Basis

2019 ◽  
Vol 65 (9) ◽  
pp. 4100-4122 ◽  
Author(s):  
Jaewon Choi ◽  
Or Shachar ◽  
Sean Seunghun Shin
Keyword(s):  
Bond Market ◽  
Law Of One Price ◽  
Corporate Bond ◽  
Financial Intermediaries ◽  
Corporate Bond Market ◽  
Liquidity Provision ◽  
Credit Default ◽  
Bond Returns ◽  
Lehman Brothers ◽  
Arbitrage Trading

We examine dealers’ liquidity provision against mispricing in the corporate bond market from 2005 to 2009. Dealers on average serve as stabilizing liquidity providers by trading against widening price gaps between corporate bonds and credit default swaps (the CDS–bond basis). However, dealers cut back on liquidity provision as they suffer losses, mispricing becomes wider, or the funding situation worsens, consistent with the limited capital capacity of financial intermediaries. We also show that the unwinding of basis arbitrage trading can amplify mispricing by documenting that bond returns following the Lehman collapse were very low for bonds with strong preexisting basis arbitrage activity and for bonds underwritten by Lehman Brothers. Liquidity demand due to the exit of arbitrageurs can be a major driver of disruption in credit markets. This paper was accepted by Lauren Cohen, finance.

Regulatory pressure and fire sales in the corporate bond market

2011 ◽  
Vol 101 (3) ◽  
pp. 596-620 ◽  
Author(s):  
Andrew Ellul ◽  
Chotibhak Jotikasthira ◽  
Christian T. Lundblad
Keyword(s):  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market ◽  
Fire Sales ◽  
Regulatory Pressure

Fire Sales and Impediments to Liquidity Provision in the Corporate Bond Market

2019 ◽  
Vol 55 (8) ◽  
pp. 2613-2640 ◽  
Author(s):  
Z. Jay Wang ◽  
Hanjiang Zhang ◽  
Xinde Zhang
Keyword(s):  
Mutual Funds ◽  
Financial Regulation ◽  
Corporate Bond ◽  
Insurance Companies ◽  
Corporate Bond Market ◽  
Fire Sales ◽  
Liquidity Provision ◽  
Regulatory Changes ◽  
Investment Styles ◽  
In Fire

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.

Momentum in Korean Corporate Bond Market

2020 ◽  
Vol 33 (3) ◽  
pp. 301-338
Author(s):  
Minyeon Han ◽  
◽  
Jemoon Woo ◽  
Hyounggoo Kang
Keyword(s):  
Bond Market ◽  
Corporate Bond ◽  
Corporate Bond Market
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