232 results on '"CORPORATE bonds"'
Search Results
2. The wisdom of the madness of crowds: Investor herding, anti-herding, and stock-bond return correlation.
- Author
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Radi, Sherrihan, Gebka, Bartosz, and Kallinterakis, Vasileios
- Subjects
- *
INVESTORS , *CORPORATE bonds , *ECONOMIC indicators , *HERDING , *BOND market , *STOCKS (Finance) , *BOND prices , *FINANCIAL security - Abstract
• We assess the impact of herding/anti-herding on stock-bond correlations in the US. • We find that corporate bonds exhibit herding and stocks anti-herding. • Both these patterns dampen the correlation between US stocks and corporate bonds. • This effect is largely noise-driven in nature. • High uncertainty, optimism and economic outperformance strengthen this effect. We examine investors' herding/anti-herding behavior in the US stock and corporate bond markets and their impact on stock-bond return correlation. Corporate bonds exhibit herding, with stocks displaying anti-herding. Bond herding and stock anti-herding are weakly related, with each significantly dampening the stock-bond return correlation. This effect is largely driven by their irrational components, affecting mostly the correlation of noise-driven stock and bond return elements, more so during periods of elevated uncertainty, optimistic sentiment and excessively positive economic performance. As the irrational forces in each asset class (stocks; bonds) countervail each other, this implies greater stability and resilience for the financial system. [ABSTRACT FROM AUTHOR]
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- 2024
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3. Global zombie companies: measurements, determinants, and outcomes.
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Altman, Edward I., Dai, Rui, and Wang, Wei
- Subjects
SMALL business ,BANKRUPTCY ,INVESTORS ,BOND market ,DISTRESSED securities ,CORPORATE bonds - Abstract
Copyright of Journal of International Business Studies is the property of Springer Nature and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)
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- 2024
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4. Bond default risk transmission through a common underwriter: evidence from China.
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Zhang, Chunqiang, Zhu, Tingyuan, Gao, Xi, Chan, Kam C., and Chen, Xiaojun
- Subjects
COUNTERPARTY risk ,CREDIT spread ,CORPORATE bonds ,INVESTORS ,BOND market ,BONDS (Finance) ,DEFAULT (Finance) - Abstract
Using samples of corporate bonds issued by Chinese A-share firms from 2014 to 2021, we examine whether information about bond defaults transmits to other bonds underwritten by a common underwriter. We document that during the underwriting process for a new corporate bond, if any prior bonds underwritten by the same underwriter have defaulted, the yield spread of the new corporate bond increases significantly. Specifically, such a new bond, on average, has a yield spread that is 16.8 basis points higher than one without a common underwriter. The results suggest that investors perceive the default risk of a new bond increases due to a deteriorated reputation of the underwriter. Additional analyses suggest that the adverse effect of the new bond yield spread is less salient when an underwriter has a strong reputation, is state-owned, or has foreign shareholding; the issuer is state-owned or dual listed overseas. Overall, default information in the bond market transmits through common underwriters. [ABSTRACT FROM AUTHOR]
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- 2024
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5. The positive impact of green bond issuance on corporate ESG performance: from the perspective of environmental behavior.
- Author
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Chen, Zhen, Huang, LinRui, and Wu, Niannian
- Subjects
GREEN bonds ,BONDS (Finance) ,ORGANIZATIONAL performance ,FINANCIAL instruments ,EMERGING markets ,BOND prices ,BOND market ,CORPORATE bonds - Abstract
Green bonds have become a vital financial instrument to promote green development globally in the face of various environmental challenges. This paper investigates the impact of China's A-share listed companies' green bond issuance on ESG performance and the potential mechanisms from 2011–2021, using propensity score matching and double difference method (PSM-DID). The study finds that green bonds improve corporate ESG performance by enhancing environmental information disclosure, encouraging green innovation, and improving green reputation. Moreover, heavily polluting industries benefit more from green bond issuance in terms of ESG performance improvement. These findings contribute to understanding the benefits of green bond market in developing countries. [ABSTRACT FROM AUTHOR]
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- 2024
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6. Machine learning and trade direction classification: insights from the corporate bond market.
- Author
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Fedenia, Mark, Ronen, Tavy, and Nam, Seunghan
- Subjects
CORPORATE bonds ,MACHINE learning ,MACHINERY industry ,SECURITIES trading ,BOND market ,CLASSIFICATION - Abstract
Leveraging the availability of a large panel of signed trade data in the corporate bond market, we explore how machine learning methods can be used to improve upon standard trade direction classification methods in markets in general, both with and without pre-trade transparency. Using the signed data set allows us to show how both the trading and information environment at the time of the trade critically affect the accuracy of existing trade classification rules in general and also illustrate the importance of optimizing the feature set in correctly classifying trade direction. These insights extend to the equity market. [ABSTRACT FROM AUTHOR]
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- 2024
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7. Unraveling the impact of female CEOs on corporate bond markets.
- Author
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Yur‐Austin, Jasmine, Zhao, Ran, and Zhu, Lu
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WOMEN chief executive officers ,COUNTERPARTY risk ,BOND market ,CORPORATE bonds ,BONDS (Finance) ,WOMEN executives ,CREDIT risk - Abstract
Little is known about how executive gender shapes the inherent conflict of interest between shareholders and bondholders. Using a sample of almost 100,000 unique bond‐year observations, this study investigates how the appointment of female chief executive officers (CEOs) lowers the default outlook. Our evidence indicates that bond yield and bond volatility are significantly lower after a female takes the helm at a firm. This executive gender effect remains highly statistically and economically significant across various robustness checks and after addressing endogeneity concerns. Female CEOs lower the default risk component of the bond yield but have no material impact on the liquidity component. Subsample analysis substantiates the conditional effect of female CEOs on bond yield and bond volatility. Our evidence indicates that female CEOs' risk‐averse attributes pass through the credit risk and information asymmetry channels. [ABSTRACT FROM AUTHOR]
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- 2024
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8. Rating Agency Fees: Pay to Play in Public Finance?
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Cornaggia, Jess, Cornaggia, Kimberly J, and Israelsen, Ryan
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RATING agencies (Finance) ,PUBLIC finance ,CREDIT ratings ,BOND market ,BOND insurance ,CORPORATE bonds ,MUNICIPAL bonds - Abstract
We examine the relationship between credit rating levels and rating agency fees in a public finance market in which rating agencies earn lower fees and face higher disclosure requirements relative to corporate bond and structured finance markets. Controlling for variation in the complexity of credit analysis at the issue level, we find evidence that rating agency conflicts of interest distort credit ratings in the municipal bond market. Unexpectedly expensive ratings are more likely downgraded, and inexpensive ratings are more likely upgraded. The relationship between credit ratings and rating agency fees is driven by issuers who lose access to AAA insurance. [ABSTRACT FROM AUTHOR]
- Published
- 2023
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9. Synthetic Options and Implied Volatility for the Corporate Bond Market.
- Author
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Chen, Steven Shu-Hsiu, Doshi, Hitesh, and Seo, Sang Byung
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CORPORATE bonds ,BOND market ,RISK premiums ,CREDIT risk ,MARKET volatility - Abstract
We synthetically create option contracts on a corporate bond index using CDX swaptions, overcoming the limitations that stem from the lack of traded corporate bond options. Our approach allows us to estimate forward-looking moments concerning the corporate bond market in a model-free manner. By constructing an aggregate volatility measure and the associated variance risk premium, we examine the role of volatility risk in the corporate bond market. We highlight that the ex ante conditional second and higher moments we estimate from synthetic corporate bond options carry important implications for credit risk models, providing an extra basis for testing their validity. [ABSTRACT FROM AUTHOR]
- Published
- 2023
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10. Earnings News and Over‐the‐Counter Markets.
- Author
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HUBER, STEFAN J., KIM, CHONGHO, and WATTS, EDWARD M.
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BOND market ,CORPORATE bonds ,OVER-the-counter markets ,EARNINGS announcements ,LIQUIDITY (Economics) ,INFORMATION asymmetry - Abstract
We document significant increases in bond market liquidity around earnings announcements. These increases are attributed to decreased search and bargaining costs, which arise from the over‐the‐counter (OTC) nature of bond markets and outweigh increases in information asymmetry during these periods. Our evidence traces reductions in search and bargaining costs to two sources around earnings announcements: (1) improved access to dealers and (2) increased participation from institutional investors, who can more easily transact with multiple dealers. Overall, our findings highlight a novel channel through which firm‐specific information affects asset prices. [ABSTRACT FROM AUTHOR]
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- 2024
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11. Trading Activity in the Corporate Bond Market: A SAD Tale of Macro-Announcements and Behavioral Seasonality?
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Forest, James J., Branch, Ben S., and Berry, Brian T.
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SECURITIES trading ,BEHAVIORAL economics ,SEASONAL affective disorder ,BONDS (Finance) ,INVESTORS ,FINANCIAL market reaction ,CORPORATE bonds ,BOND market - Abstract
This study investigates the determinants of trading activity in the U.S. corporate bond market, focusing on the effects of Seasonal Affective Disorder (SAD) and macroeconomic announcements. Employing the General-to-Specific (Gets) Autometrics methodology, we identify distinct behavioral responses between retail and institutional investors to SAD, noting a significant impact on retail trading volumes but not on institutional trading or bond returns. This discovery extends the understanding of behavioral finance within the context of bond markets, diverging from established findings in equity and Treasury markets. Additionally, our analysis delineates the influence of macroeconomic announcements on trading activities, offering new insights into the market's reaction to economic news. This study's findings contribute to the broader literature on market microstructure and behavioral finance, providing empirical evidence on the interplay between psychological factors and macroeconomic information flow within corporate bond markets. By addressing these specific aspects with rigorous econometric techniques, our research enhances the comprehension of trading dynamics in less transparent markets, offering valuable perspectives for academics, investors, risk managers, and policymakers. [ABSTRACT FROM AUTHOR]
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- 2024
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12. DETERMINANTS AND VALUE IMPLICATIONS OF CORPORATE ESG BOND ISSUANCE: EVIDENCE FROM SOUTH KOREA.
- Author
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BOXIAN WANG, JIYOON LEE, and HYEJIN PARK
- Subjects
CORPORATE bonds ,FINANCIAL market reaction ,BOND market ,GREEN bonds ,BONDS (Finance) ,CARBON emissions ,EMISSIONS trading - Abstract
We examine the determinants of and investor responses to corporate environmental, social, and governance (ESG) bond issuance in Korea. We find that ESG bond issuance is positively associated with firm size and foreign ownership stakes. We also find that firms that establish ESG committees at the board level and those that are subject to carbon emission trading system are more likely to issue ESG bonds. Unlike prior studies that analyze green bond issuance in developed markets and China, we find no significant stock market reaction to ESG bond issuance in Korea, suggesting that the signaling effect of ESG bonds-in which companies credibly signal their commitment to ESG by issuing ESG bonds-does not exist. This paper suggests that enhanced ESG bond standards, post-issuance reporting, and verification procedures are needed in the Korean ESG bond market. [ABSTRACT FROM AUTHOR]
- Published
- 2024
13. Do corruption perceptions impact the pricing and access of euro area corporations to bond markets?
- Author
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Alonso, Marta, Arnal, Judith, Mesa-Toro, Andrés, and Moreno, Antonio
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CORPORATE bonds ,FOREIGN investments ,EUROZONE ,BONDS (Finance) ,BOND prices ,POLITICAL corruption ,CORRUPTION ,BOND market - Abstract
Public sector corruption affects economic and financial outcomes, such as GDP growth, foreign direct investment, and government funding costs. Less is known about the spillovers from perceptions of public sector corruption on the private sector corporate bond market. In this paper, we assess the role of public sector corruption perception on corporate bond market variables in Europe using data of both country-level corporate bond indexes and firm-level corporate bond market issuances. At the aggregate country level, we find some evidence that country indices of corporate bonds' yields and coupons are higher in countries with more corruption. While we do not find effects of corruption on coupon rates at the individual firm level, we show that higher government corruption perception increases their yield to maturity and reduces the amounts raised by corporations through their bond issuances. [ABSTRACT FROM AUTHOR]
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- 2024
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14. The Bond-Pricing Implications of Rating-Based Capital Requirements.
- Author
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Murray, Scott and Nikolova, Stanislava
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BOND prices ,CAPITAL requirements ,BOND ratings ,INSURANCE company investments ,CORPORATE bonds ,ECONOMIC demand ,PRICING ,BOND market - Abstract
This article demonstrates that rating-based capital requirements, through their impact on insurers' investment demand, affect corporate bond prices. Consistent with insurers' low demand for investment-grade bonds with a rating close to noninvestment-grade, these bonds outperform. Consistent with insurers' high (low) demand for investment-grade bonds with high (low) systematic risk exposure, these bonds underperform (outperform). Insurer demand, measured by insurer holdings, explains most of these pricing effects. We identify rating-based capital requirements as the driver of insurer demand, and thus the pricing effects, by showing that the effects do not exist before these requirements' implementation in 1993. [ABSTRACT FROM AUTHOR]
- Published
- 2022
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15. Asymmetric Information and Corporate Lending: Evidence from SME Bond Markets.
- Author
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Iannamorelli, Alessandra, Nobili, Stefano, Scalia, Antonio, and Zaccaria, Luana
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BOND market ,LOANS ,INFORMATION asymmetry ,SMALL business ,BONDS (Finance) ,CORPORATE bonds - Abstract
Using a comprehensive dataset of Italian small and medium-sized enterprises, we find that differences between private and public information on firm creditworthiness affect the decision to issue bonds. Our evidence supports favorable (rather than adverse) selection in corporate bond markets. Specifically, holding public information constant, firms with better private fundamentals are more likely to access bond markets. These effects are weaker for opaque firms and stronger for firms with worse publicly observable risk. Additionally, credit conditions improve for issuers following the bond placement, compared with a matched sample of non-issuers. This is consistent with a model where banks offer more flexibility than markets during financial distress and firms use market lending to signal credit quality to outside stakeholders. [ABSTRACT FROM AUTHOR]
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- 2024
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16. Corporate carbon emissions data for equity and bond portfolios.
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Swinkels, Laurens and Markwat, Thijs
- Subjects
CORPORATE bonds ,CARBON emissions ,HIGH yield investments ,GREENHOUSE gases ,BOND market ,JUNK bonds - Abstract
Purpose: To better understand the impact of choosing a carbon data provider for the estimated portfolio emissions across four asset classes. This is important, as prior literature has suggested that Environmental, Social and Governance scores across providers have low correlation. Design/methodology/approach: The authors compare carbon data from four data providers for developed and emerging equity markets and investment grade and high-yield corporate bond markets. Findings: Data on scope 1 and scope 2 is similar across the four data providers, but for scope 3 differences can be substantial. Carbon emissions data has become more consistent across providers over time. Research limitations/implications: The authors examine the impact of different carbon data providers at the asset class level. Portfolios that invest only in a subset of the asset class may be affected differently. Because "true" carbon emissions are not known, the authors cannot investigate which provider has the most accurate carbon data. Practical implications: The impact of choosing a carbon data provider is limited for scope 1 and scope 2 data for equity markets. Differences are larger for corporate bonds and scope 3 emissions. Originality/value: The authors compare carbon accounting metrics on scopes 1, 2 and 3 of corporate greenhouse gas emissions carbon data from multiple providers for developed and emerging equity and investment grade and high yield investment portfolios. Moreover, the authors show the impact of filling missing data points, which is especially relevant for corporate bond markets, where data coverage tends to be lower. [ABSTRACT FROM AUTHOR]
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- 2024
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17. THE INFORMATIONAL ROLE OF THE LOAN ONLY CREDIT DEFAULT INDEX (LCDX) ON THE PRICING OF SYNDICATED LOANS.
- Author
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DAVAADORJ, ZAGDBAZAR and BRUSA, JORGE
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CORPORATE bonds ,BOND market ,STATISTICAL correlation ,INFORMATION retrieval ,FINANCIAL management - Abstract
This paper explores the informational role of the Loan Only Credit Default Index (LCDX) on the pricing of syndicated loans. Despite an extensive body of research on credit indices and loan pricing, limited studies have comprehensively assessed the complex relationship between the LCDX and individual loan spreads. Contrary to indices like the CDX, which are largely linked to corporate bonds, the LCDX directly pertains to the syndicated secured loan market, offering valuable insights about the overall credit default market and the cost of credit risk insurance. Preliminary results reveal a pronounced positive correlation between the LCDX spread and the syndicated loan spread, particularly noticeable amongst borrowers with lower credit quality. The paper highlights the LCDX's pivotal role in conveying secondary credit market information, with critical implications for credit risk management and financial regulations. [ABSTRACT FROM AUTHOR]
- Published
- 2024
- Full Text
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18. Panic Selling When Disaster Strikes: Evidence in the Bond and Stock Markets.
- Author
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Huynh, Thanh D. and Xia, Ying
- Subjects
BOND market ,NATURAL disasters ,BOND prices ,CATASTROPHE bonds ,CLIMATOLOGY ,CORPORATE bonds ,STOCK prices ,INVESTORS - Abstract
This study uses disaggregated establishment-level data to identify a firm's exposure to physical climate risk and examines investors' reaction to natural disasters in both the U.S. corporate bond and stock markets. We find that, when a firm is exposed to disasters, investors overreact by depressing the current bond and stock prices, causing future returns to be higher. However, firms with a strong environmental profile experience lower selling pressure on their bonds and stocks, although their fundamentals weakened following disasters. The evidence suggests that corporate investment in improving environmental profiles pays off when climate change risk is materialized. This paper was accepted by Colin Mayer, Special Section of Management Science on Business and Climate Change. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2021.4018. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
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19. Pattern, Source, Destination of Volatilities in Financial Market and Policy Lessons.
- Author
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Rath, Prabhas Kumar
- Subjects
FINANCIAL markets ,FINANCIAL policy ,BOND market ,BANKING industry ,CORPORATE bonds ,VOLATILITY (Securities) ,MARKET volatility - Abstract
This paper studies patterns of volatilities and their spillovers across six major segments of Indian financial market applying univariate GARCH model and estimating the Diebold and Yilmaz (DY) volatility spillover index. The study found increasing integration of financial market segments over time and that equity, bank index and corporate bond segments are net contributors while money, gsec and forex segments are net receivers of volatility. The study highlights the need for a healthy banking sector and the increasing significance of corporate bond market volatility and suggests segment specific policy responses to tackle financial market volatilities. [ABSTRACT FROM AUTHOR]
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- 2023
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20. Corporate Bond Liquidity during the COVID-19 Crisis.
- Author
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Kargar, Mahyar, Lester, Benjamin, Lindsay, David, Liu, Shuo, Weill, Pierre-Olivier, and Zúñiga, Diego
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CORPORATE bonds ,LIQUIDITY (Economics) ,COVID-19 pandemic ,BOND market ,CREDIT departments - Abstract
We study liquidity conditions in the corporate bond market during the COVID-19 pandemic. We document that the cost of trading immediately via risky-principal trades dramatically increased at the height of the sell-off, forcing customers to shift toward slower agency trades. Exploiting eligibility requirements, we show that the Federal Reserve's corporate credit facilities have had a positive effect on market liquidity. A structural estimation reveals that customers' willingness to pay for immediacy increased by about 200 bps per dollar of transaction, but quickly subsided after the Fed announced its interventions. Dealers' marginal cost also increased substantially but did not fully subside. [ABSTRACT FROM AUTHOR]
- Published
- 2021
- Full Text
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21. When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed's Response.
- Author
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Haddad, Valentin, Moreira, Alan, and Muir, Tyler
- Subjects
DEBT management ,COVID-19 pandemic ,FINANCIAL market reaction ,BOND market ,NET Asset Value ,CORPORATE bonds - Abstract
We document extreme disruption in debt markets during the COVID-19 crisis: a severe price crash accompanied by significant dislocations at the safer end of the credit spectrum. Investment-grade corporate bonds traded at a discount to credit default swaps; exchange-traded funds traded at a discount to net asset value, more so for safer bonds. The Federal Reserve's announcement of corporate bond purchases caused these dislocations to disappear and prices to recover. These facts inform potential theories of the disruption. The best explanation is an acute liquidity need for specific bond investors, such as mutual funds, leading them to liquidate large positions. [ABSTRACT FROM AUTHOR]
- Published
- 2021
- Full Text
- View/download PDF
22. Tunisian corporate bond market liquidity: a qualitative approach.
- Author
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Berrich, Olfa and Dabbou, Halim
- Subjects
BOND market ,CORPORATE bonds ,BONDS (Finance) ,LIQUIDITY (Economics) ,TUNISIANS ,YIELD curve (Finance) ,OVER-the-counter markets - Abstract
Purpose: This study aims to explore the failures of Tunisian secondary corporate bond market liquidity to understand the determinants of corporate bond market liquidity at large. Design/methodology/approach: We adopted a qualitative approach to studying the Tunisian Stock Exchange. Dealers' perceptions were collected through semi-structured face-to-face interviews; the data was recorded, transcribed and thematically analysed. Findings: Secondary corporate bond market failures are due, in part, to microstructural choices – especially the use of an over-the-counter market as a trading venue. The absence of a corporate bond yield curve, a narrow investor base, market participants' lack of financial education and authorities' attitudes are equally responsible. Research limitations/implications: This study is useful to researchers, policymakers and practitioners, as it identifies microstructural and other factors affecting the Tunisian secondary corporate bond market. We interviewed only Tunisian dealers while ignoring other categories of market participants. Furthermore, a focus group discussion could have improved our understanding of the determinants of the Tunisian secondary corporate bond market. Originality/value: This paper aimed to qualitatively discuss several issues related to the Tunisian secondary corporate bond market. To date, little academic research has addressed this topic in the illiquid and non-transparent corporate bond markets. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
23. Measurement of spillover effect between green bond market and traditional bond market in China.
- Author
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Peng, Gang, Ding, Jie, Zhou, Zehang, and Zhu, Li
- Subjects
BOND market ,BONDS (Finance) ,GREEN bonds ,GREEN marketing ,INVESTORS ,VOLATILITY (Securities) ,CORPORATE bonds - Abstract
With the aim of effectively preventing and controlling systemic risk, by stimulating the advancement of the green bond market, it is significant and imperative to help investors and policymakers adopt more effective measures, which will ensure them to maximize profit. We construct VAR, DCC-GARCH and Copula-CoVaR models, and study the spillover effect between the green bond market and traditional bond market from the three perspectives of mean spillover, volatility spillover and extreme risk spillover using the data on daily closing prices of green bond market and traditional bond market indices. The research findings of this paper are as follows: (1) There are three spillover effects of mean value, volatility and extreme risk among the green bond market, corporate bond market, enterprise bond market and conventional bond market. (2) From the perspective of mean spillover between markets, only the mean spillover between the conventional bond market and the green bond market is bidirectional, and there is the profoundest impact of spillover from the green bond market to the conventional bond market. (3) As far as the volatility spillover between markets is concerned, the volatility spillover between the three traditional bond market and the green bond markets are all positive. The volatility spillover between the conventional bond market and the green bond market is the largest, which is particularly obvious in the first half of 2018 and the first half of 2020. (4) In terms of inter-market extreme risk spillover, the risk spillover between the green bond market and the traditional bond market is positive. The green bond market contributes more to the risk spillover of the enterprise bond market, and it has a time-varying risk spillover effect on the traditional bond market. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
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24. Pledgeability and Asset Prices: Evidence from the Chinese Corporate Bond Markets.
- Author
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CHEN, HUI, CHEN, ZHUO, HE, ZHIGUO, LIU, JINYU, and XIE, RENGMING
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BOND market ,CORPORATE bonds ,BOND prices ,ASSET sales & prices ,HAIRCUT (Finance) ,FINANCIAL policy - Abstract
We provide causal evidence on the value of asset pledgeability by exploiting a unique feature of Chinese corporate bond markets: bonds with identical fundamentals are traded on two segmented markets with different rules for repo transactions. Using a policy shock that rendered AA+ and AA bonds ineligible for repo on one market only, we compare how bond prices changed across markets and rating classes around this event. When the haircut increases from 0% to 100%, bond yields increase by 39 bps to 85 bps. These estimates help us infer the magnitude of the shadow cost of capital in China. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
25. The Role of Social Media in the Corporate Bond Market: Evidence from Twitter.
- Author
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Bartov, Eli, Faurel, Lucile, and Mohanram, Partha
- Subjects
BOND market ,CORPORATE bonds ,CREDIT risk ,CREDIT default swaps ,INVESTORS ,BONDS (Finance) ,SOCIAL media - Abstract
Prior studies document the role social media information plays in the stock market and the important dissimilarities between the bond and stock markets. Bridging these two types of literature, we examine the role of social media information in the corporate bond market. Analyzing a broad sample of messages by Twitter individual users, posted just prior to earnings announcements, containing bond, credit risk, and fundamental information, we find that aggregate Twitter opinion (OPI) predicts upcoming announcement bond returns and changes in credit default swap (CDS) spreads, and is associated with future changes in bond yield spreads and credit ratings, thereby providing economically important information to the bond market. This interpretation is bolstered by results from a variety of cross-sectional analyses. Finally, we document an association between OPI and future changes in default risk, which casts light on the nature of the Twitter information underlying our findings. Overall, our findings demonstrate that Twitter appears to disseminate potentially economically important information to even the presumably sophisticated bond and CDS investors, as well as information intermediaries. This paper was accepted by Suraj Srinivasan, accounting. Funding: P. Mohanram acknowledges financial support from the Social Sciences and Humanities Research Council (SSHRC) of Canada. Supplemental Material: The data files and online appendix are available at https://doi.org/10.1287/mnsc.2022.4589. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
26. Proposing Credit- and Sensitivity-Risk-Based Methodology to Address Corporate Bond Illiquidity Problem.
- Author
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Arora, Ruchi and Mehra, Rishi
- Subjects
CORPORATE bonds ,BOND market ,BONDS (Finance) ,SECURITIES trading ,FAIR value ,LIQUIDITY (Economics) ,CREDIT risk ,RESEARCH personnel - Abstract
The current study explores the problem of illiquidity in the corporate bond market globally and proposes a solution to enhance liquidity by studying various dimensions of liquidity. Purpose: The purpose of this paper is to propose a solution to the global issue of illiquidity in the corporate bond market. The problem has been identified by many researchers and this paper attempts to find a viable solution in the "fungibility route" as an alternative to the "liquidity route". Design/Methodology: An analysis of a sample size of 234,772 trade data of corporate bonds and a sample size of 2,00,607 trade data of G-securities is performed to identify the problem. Findings/Solution proposed: A mathematical model based on the credit risk differential and sensitivity differential is proposed to find out the fair value at which an illiquid bond can be exchanged with a liquid bond. To arrive at the fair value of the illiquid bond, we have calculated the risk-adjusted yield (RAY) using the modified duration and a credit risk differential. Originality: This research is a pioneering effort in addressing the worldwide issue of corporate bond illiquidity by proposing a novel solution. The proposed strategy aims to improve the liquidity of the bond indirectly, by utilizing the fungibility route. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
27. Financial support for the development of the northern territories of the country
- Author
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V. V. Prokhorov, I. P. Rozhnov, and Yu. V. Erygin
- Subjects
corporate bonds ,cluster ,lower angara region ,bond financing mechanism, financial infrastructure ,bond market ,Sociology (General) ,HM401-1281 ,Economics as a science ,HB71-74 - Abstract
This article studies the issues related to the economic development of the Lower Angara region located in Krasnoyarsk Territory, analyzes the state programs for the development of the Soviet and post-Soviet era territory, and makes an attempt to determine the reasons for the unsuccessful implementation of it. Based on the conclusions made, a new approach to the socio-economic development of the area has been proposed. It consists in the application of a number of specialized industrial clusters on the territory. It is proposed to use bond financing for the financial basis of its formation. To substantiate it, the analysis of the current state of the national bond market in terms of volumes of issuance, maturity has been made and segments of the corporate bond market in the country have been considered. It is suggested that the use of an appropriate financial infrastructure would make the bond financing mechanism operation more effective.
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- 2023
- Full Text
- View/download PDF
28. The Macroeconomic Uncertainty Premium in the Corporate Bond Market.
- Author
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Bali, Turan G., Subrahmanyam, Avanidhar, and Wen, Quan
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CORPORATE bonds ,BOND market ,MACROECONOMICS ,UNCERTAINTY ,FINANCIAL risk ,LIQUIDITY (Economics) ,RATE of return - Abstract
We examine the role of macroeconomic uncertainty in the cross section of corporate bonds and find a significant uncertainty premium for both investment-grade (IG) (0.40% per month) and non-investment-grade (NIG) (0.81% per month) bonds. The economic-uncertainty premium declines as we progressively remove downgraded bonds, indicating that the premium represents an increase in required returns for bonds with higher credit and macroeconomic risk. The economic-uncertainty premia vary across equities and bonds in a manner consistent with the heterogeneous risk-aversion levels of dominant players in equities (retail investors) versus bonds (institutional investors). [ABSTRACT FROM AUTHOR]
- Published
- 2021
- Full Text
- View/download PDF
29. Mutual Fund Trading Style and Bond Market Fragility.
- Author
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Anand, Amber, Jotikasthira, Chotibhak, and Venkataraman, Kumar
- Subjects
MUTUAL funds ,BOND market ,SECURITIES trading ,CORPORATE bonds ,LIQUIDITY (Economics) - Abstract
We explore the link between mutual funds and fragility risk in the corporate bond market. We classify a fund's trading style based on its responses to signals of large dealer inventories. Trading style is persistent and the majority of funds demand liquidity. Notably, a subset of funds earn positive alpha by intentionally supplying liquidity during periods of sustained customer selling (with transitory price effects). Liquidity-supplying funds maintain their relative trading style when facing large outflows and elevated market stress, thus alleviating fragility risk. Our results add nuance to existing evidence that mutual funds pose a threat to market stability. [ABSTRACT FROM AUTHOR]
- Published
- 2021
- Full Text
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30. Incomplete Information, Debt Issuance, and the Term Structure of Credit Spreads.
- Author
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Benzoni, Luca, Garlappi, Lorenzo, and Goldstein, Robert
- Subjects
CREDIT spread ,DEBT service ,DEBT ,DEBT relief ,CORPORATE bonds ,RISK premiums ,CREDIT ,BOND market - Abstract
We derive a firm's debt issuance policy when managers have an informational advantage over creditors and face debt restructuring costs. In our model, regardless of how poor their private signal is, managers of firms that can access the credit market avoid default by issuing new debt to service existing debt. Therefore, only bonds of firms that have exhausted their ability to borrow are subject to jump-to-default risk because of incomplete information and, in turn, command a jump-to-default risk premium. We document that our model captures many salient features of the corporate bond market. This paper was accepted by Kay Giesecke, finance. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4529. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
31. Time‐varying causality between bond and oil markets of the United States: Evidence from over one and half centuries of data.
- Author
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Coronado, Semei, Gupta, Rangan, Nazlioglu, Saban, and Rojas, Omar
- Subjects
GOVERNMENT securities ,RATE of return on stocks ,BONDS (Finance) ,BOND market ,CORPORATE bonds ,INVENTORY control ,VOLATILITY (Securities) - Abstract
This paper analyzes the time‐varying causality between government bond and oil returns of the United States over the monthly period of 1859:10 to 2019:03, that is, the longest possible span of historical data, starting from the beginning of the modern era of the petroleum industry. While the standard constant parameter causality test fails to pick up any evidence of causality, the time‐varying framework shows evidence of bi‐directional spillovers over the entire sample period. The results are robust to the inclusion of stock returns as a control variable in the model. We also detect evidence of time‐varying causality‐in‐volatility between sovereign bond and oil markets, as well as spillovers in returns and volatility from the oil market to corporate bonds. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
32. PREDICTION-BASED INVESTMENT STRATEGIES IN EUROPEAN BOND MARKETS.
- Author
-
PADYŠÁK, MATÚŠ
- Subjects
- *
FINANCIAL markets , *BOND market , *INVESTMENT policy , *GOVERNMENT securities , *CORPORATE bonds - Abstract
Daily returns of the European corporate bond market are predicted using a penalized Lasso regression or Random forests. Predictions are utilized in investment strategies that allocate resources into risky position: interest-rate hedged corporate bonds or unhedged corporate bonds and risk-free position proxied by the Euro-Bobl futures that track the German government bonds. The strategies are more profitable with a lower risk than their passive alternatives, which only invest in corporate bonds (hedged or unhedged), but the daily rebalancing can be costly. Therefore, we examine the break-even transaction costs and suggest two approaches to lower the overall costs. Overall, even with costs, active strategies based on prediction can achieve higher returns with a lower risk. [ABSTRACT FROM AUTHOR]
- Published
- 2023
33. Trust, social capital, and the bond market benefits of ESG performance.
- Author
-
Amiraslani, Hami, Lins, Karl V., Servaes, Henri, and Tamayo, Ane
- Subjects
SOCIAL capital ,TRUST ,FINANCIAL crises ,BONDS (Finance) ,AGENCY costs ,CAPITAL costs ,BOND market - Abstract
We investigate whether a firm's social capital and the trust that it engenders are viewed favorably by bondholders. Using firms' environmental and social (E&S) performance to proxy for social capital, we find no relation between social capital and bond spreads over the period 2006–2019. However, during the 2008–2009 financial crisis, which represents a shock to trust and default risk, high-social-capital firms benefited from lower bond spreads. These effects are stronger for firms with higher expected agency costs of debt and firms whose E&S efforts are more salient. During the crisis, high-social-capital firms were also able to raise more debt, at lower spreads, and for longer maturities. We find no evidence that the governance element of ESG is related to bond spreads. The gap between E&S performance of firms in the bottom and top E&S terciles has narrowed since the financial crisis, especially in the year prior to accessing the bond market. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
34. Fire Sales and Impediments to Liquidity Provision in the Corporate Bond Market.
- Author
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Wang, Z. Jay, Zhang, Hanjiang, and Zhang, Xinde
- Subjects
CORPORATE bonds ,BOND market ,LIQUIDITY (Economics) ,MUTUAL funds ,INSURANCE companies ,SHORT selling (Securities) - Abstract
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. [ABSTRACT FROM AUTHOR]
- Published
- 2020
- Full Text
- View/download PDF
35. Determinants of Short-Term Corporate Yield Spreads: Evidence from the Commercial Paper Market.
- Author
-
Huang, Jing-Zhi, Liu, Bibo, and Shi, Zhan
- Subjects
CREDIT spread ,CORPORATE bonds ,CREDIT risk ,COMMERCIAL markets ,SECONDARY markets ,BOND market - Abstract
What drives short-term credit spreads: credit risk, liquidity risk, or both? We investigate this issue using the structural approach to credit risk modeling and a novel data set of secondary market transaction prices for Chinese commercial papers (CPs). In particular, we propose and test a structural model with jump risk and exogenous market illiquidity under which the predicted yield spreads can be decomposed into a credit component and a liquidity component. We find that credit risk and, especially liquidity risk, are important determinants of short-term yield spreads. Our model-based decomposition results show that, on average, credit risk and market liquidity account for about 25% and 52% of CP yield spreads, respectively. For comparison, we also examine the drivers of the US CP yield spreads using security-level data. We find that credit risk accounts for a small fraction of the observed yield spreads but liquidity contributes a much greater proportion. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
36. Implied Volatility Changes and Corporate Bond Returns.
- Author
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Cao, Jie, Goyal, Amit, Xiao, Xiao, and Zhan, Xintong
- Subjects
MARKET volatility ,BONDS (Finance) ,DERIVATIVE securities ,ORGANIZATIONAL change ,CORPORATE bonds ,OPTIONS (Finance) ,RESEARCH grants ,BOND market ,CAPITAL costs - Abstract
Corporate bonds with large increases in implied volatility over the past month underperform those with large decreases in implied volatility by 0.6% per month. In contrast to existing studies that show implied volatility changes carry information about fundamental news, our evidence suggests that implied volatility changes contain information about uncertainty shocks to the firm. Our results are consistent with the notion that informed traders with new information about firm risk prefer to trade in the option market and the corporate bond market underreacts to this information. This paper was accepted by Haoxiang Zhu, finance. Funding: We thank the Canadian Derivatives Institute for financial support. J. Cao and X. Zhan acknowledge generous financial support of the Research Grant Council of the Hong Kong Special Administrative Region, China [Grants GRF 14501720, 14500919]. Supplemental Material: The online appendix and data are available at https://doi.org/10.1287/mnsc.2022.4379. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
37. Uncertainty and the Cost of Bank versus Bond Finance.
- Author
-
GRIMME, CHRISTIAN
- Subjects
UNCERTAINTY ,CORPORATE bonds ,CORPORATE finance ,BANK loans ,BOND market ,DEFAULT (Finance) ,SPREAD (Finance) ,COUNTERPARTY risk - Abstract
How does uncertainty affect the costs of raising finance in the bond market and via bank loans? Empirically, this paper finds that heightened uncertainty is accompanied by an increase in corporate bond spreads, whereas spreads on bank loans remain unchanged. This finding can be explained with a model that includes costly state verification and in which banks maintain long‐term relationships with borrowers and acquire information beyond what is publicly available. After an unexpected increase in uncertainty, the probability of borrower default increases. Banks leave the loan spread unchanged to maintain the relationship. In contrast, bond spreads increase because investors demand compensation for the increased default risk. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
38. Analysis of Yields and Their Determinants in the European Corporate Green Bond Market.
- Author
-
Grishunin, Sergei, Bukreeva, Alesya, Suloeva, Svetlana, and Burova, Ekaterina
- Subjects
BONDS (Finance) ,GREEN bonds ,BOND market ,CORPORATE bonds ,INVESTORS ,CAPITAL market ,GREEN marketing - Abstract
The green bond market helps to mobilize financial sources toward sustainable investments. Green bonds are similar to conventional bonds but are specifically designed to raise money to finance environmental projects. The feature of green bonds is the existence of greenium, or the lower yield compared to "conventional" bonds of the same risk. The relevance of the paper is underpinned by the mixed evidence on the existence of 'greenium', especially in corporate green bond markets; there has been limited research on the topic and a narrow focus on global, US, or Chinese green bond markets. Instead, the greenium in European debt markets remains underexplored. The objective of this study is to investigate the existence of greenium and its key determinants in European corporate debt capital markets, including the local markets of the United Kingdom (UK), France, Netherlands, and Germany. The sample included 3851 corporate bonds, both green and conventional ones, between 2007 and 2021 from 33 European countries. Linear regression was applied for the analysis. The results show that the climate corporate bonds in Europe are priced at a discount to the same-risk conventional corporate bonds. The magnitude of greenium is around 3 bps. Determinants of greenium include the presence of an ESG rating and belonging to the utility and financial industry. The remaining drivers of bond yields in the European corporate debt market are the credit quality (expressed by the level of credit rating), the coupon size, the bond tenor, the market liquidity, and macroeconomic variables (growth of gross domestic product and consumer price index). For the local corporate debt markets, our results are controversial. In all markets under consideration except for the UK and the Netherlands, we did not find sustainable evidence of greenium. The results of the research lead to a better understanding of the green bond market for investors, researchers, regulators, and potential issuing companies. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
39. Orderbook demand for corporate bonds.
- Author
-
Krebbers, Arthur, Marshall, Andrew, McColgan, Patrick, and Neupane, Biwesh
- Subjects
CORPORATE bonds ,ECONOMIC impact ,BONDS (Finance) ,PORTFOLIO diversification ,BOND market ,EUROZONE ,CREDIT risk ,GLOBAL Financial Crisis, 2008-2009 ,BOND prices - Abstract
We examine the determinants of investor demand for corporate bond offerings using novel data on the primary market orderbook size. We find that credit risk and bond market presence are significant in explaining investor demand. These effects are more pronounced during the crisis periods including the global financial crisis and eurozone crisis as well as during the postcrisis periods. Our results also highlight the size of the bond investor order depends on information asymmetry costs and the benefit of diversifications, as investor demand is lower for new issuers as well as very frequent issuers. The levels of investor demand have important economic consequences for bond issuers as high investor demand shortens the time to subsequent bond issues and potentially reduces the firm's cost of capital at issuance. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
40. Algorithmic market making in dealer markets with hedging and market impact.
- Author
-
Barzykin, Alexander, Bergault, Philippe, and Guéant, Olivier
- Subjects
FOREIGN exchange market ,BOND market ,STOCHASTIC control theory ,CORPORATE bonds - Abstract
In dealer markets, dealers provide prices at which they agree to buy and sell the assets and securities they have in their scope. With ever increasing trading volume, this quoting task has to be done algorithmically in most markets such as foreign exchange (FX) markets or corporate bond markets. Over the last 10 years, many mathematical models have been designed that can be the basis of quoting algorithms in dealer markets. Nevertheless, in most (if not all) models, the dealer is a pure internalizer, setting quotes and waiting for clients. However, on many dealer markets, dealers also have access to an interdealer market or even public trading venues where they can hedge part of their inventory. In this paper, we propose a model taking this possibility into account therefore allowing dealers to externalize part of their risk. The model displays an important feature well known to practitioners that within a certain inventory range, the dealer internalizes the flow by appropriately adjusting the quotes and starts externalizing outside of that range. The larger the franchise, the wider is the inventory range suitable for pure internalization. The model is illustrated numerically with realistic parameters for USDCNH spot market. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
41. Pricing risky corporate bonds: An empirical study.
- Author
-
Baaquie, Belal Ehsan and Karim, Muhammad Mahmudul
- Subjects
PRICES ,BOND prices ,FIXED prices ,BONDS (Finance) ,EMPIRICAL research ,CORPORATE bonds ,BOND market ,MARKET prices - Abstract
This paper empirically studies a model for pricing risky corporate bonds proposed by Baaquie—based on the seminal Merton. The proposed model provides an exact solution for the price of a risky corporate bond with a finite maturity and explains the market price of corporate fixed coupon bonds as being the result of the market risk that is carried by the bond. Baaquie's model is empirically tested using 42 fixed coupon bonds issued by 23 US corporations, between 2011 and 2017. It is found that the proposed model estimates most bond prices quite accurately. Market time (similar to the concept of psychological time), which is distinct from calendar time, is quantified in the paper and is an exogenous behavioral parameter that plays a pivotal role in improving the accuracy of the pricing model for long‐maturity risky bonds. [ABSTRACT FROM AUTHOR]
- Published
- 2023
- Full Text
- View/download PDF
42. Equity analysts' recommendation revisions and corporate bond price reactions.
- Author
-
Wei, Xiaoting and Do, Viet
- Subjects
CORPORATE bonds ,STOCK prices ,STOCKS (Finance) ,EARNINGS management ,PRICES ,INSTITUTIONAL ownership (Stocks) ,FINANCIAL market reaction ,BOND prices ,BOND market - Abstract
This paper analyzes bond price reactions to examine the information spillover from equity analysts' recommendation revisions into the bond market. We document a positive relation between bond price reactions and recommendation revisions. On average, bond prices react positively to recommendation upgrades and negatively to recommendation downgrades. The strongest reactions are observed among speculative‐grade bonds. While, on average, bond price movements are in the same direction as analysts' recommendation revisions, these revisions can also lead to bond price reactions in the opposite direction to share price reactions. We find evidence of negative bond return reactions relative to share price reactions among firms that are closer to distress, especially when they have high levels of institutional ownership or discretionary accruals. The negative relative price reaction between shares and bonds indicates that equity analyst recommendations sometimes carry security‐specific information. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
43. Home bias and the need to build a bond market track record.
- Author
-
Krebbers, Arthur, Marshall, Andrew, McColgan, Patrick, and Neupane, Biwesh
- Subjects
BOND market ,BONDS (Finance) ,CORPORATE bonds ,ECONOMIES of scale ,PORTFOLIO diversification ,DOMESTIC markets ,BOND prices - Abstract
This paper examines home bias in the primary distribution process of the European corporate bond market. Our approach allows us to study the initial holdings of corporate bonds at a uniquely liquid point in their life cycle. We find that home bias is prevalent across our sample, but is highest amongst bonds issued by firms from both the highest-debt market size economies and lower-debt market sizes economies, who both benefit from relatively large domestic bond markets compared to their funding needs. We argue that international diversification can occur in this market through a life cycle effect where issuers outgrow investor home bias and build a reputation amongst international investors through regular bond market issuance. Our results provide some initial support for this life cycle effect, with repeat issues, issues off an EMTN programme, and highly subscribed issues being associated with lower home bias. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
44. In Search of Greenium. Analysis of Yields in the European Green Bond Markets.
- Author
-
Sergei, Grishunin and Alesya, Bukreeva
- Subjects
BONDS (Finance) ,GREEN bonds ,BOND market ,GREEN marketing ,CORPORATE bonds ,GREEN technology - Abstract
The green bond market shows good potential to help mobilize financial sources towards sustainable investments. Green bonds are similar to conventional bonds but are specifically created to raise money to finance climate or other environmental projects. The relevance of the paper is underpinned by mixed evidence on the existence of 'greenium in various corporate bond markets and lack of a clear understanding of the green bond yields' determinants. The objective of the paper is to explore the existence and determinants of greenium in Europe. Our sample included 3,851 green and conventional bonds in the European debt markets over the period from 2007 to 2021. The results showed that the climate corporate bonds in Europe are priced at discount to the same-risk conventional corporate bonds. The magnitude of greenium in whole European green bond market was around 4 bps. However, we did not find the significant greenium in the green bond markets of the UK, France, Netherlands, and Germany. The conclusions of the research could lead to a better understanding of the green bond market for investors, regulators, and potential issuing companies. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
45. Security Warning Model of Chinese Corporate Bond Defaults Based on Deep Neural Networks.
- Author
-
Bo, Lan, Weiwei Zhang, Chen, Chen, and Ji, Mingkai
- Subjects
ARTIFICIAL neural networks ,CORPORATE bonds ,DEFAULT (Finance) ,STOCK exchanges ,BOND market - Abstract
The Chinese bond market has achieved rapid development over the years. However, since the "rigid payment" in China was broken in 2014, the number and size of bond defaults have climbed up promptly and caused huge volatility in bond and even stock markets. To better manage and control the risk of the Chinese corporate bonds market, deep learning can be used as a helpful tool to predict the corporate default risk. This paper constructs a security warning model based on deep neural networks after a reasonable selection of characteristic indicators. By comparing Multi-Layer Perceptron (MLP) with the logistic regression method, it is found that MLP is more suitable in the security warning model to predict the default risk. And, hyper-parameter analyses and ablation study are conducted to explore the performance and accuracy of the best MLP settings. The experimental results show that the deep learning method accommodating the widely chosen factors in the security warning model is effective in predicting corporate bond defaults in China. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
46. The European banks' role in the financial crisis of 2007-8: a critical assessment.
- Author
-
Lysandrou, Photis
- Subjects
- *
FINANCIAL crises , *MONEY market funds , *COLLATERALIZED debt obligations , *CORPORATE bonds , *BANKING laws , *BOND market , *FEDERAL funds market (U.S.) - Abstract
Since the outbreak of the financial crisis in 2007, opinion has been divided over whether its root cause was weak regulation and bank funding problems or the pressure of investor demand for US safe assets. New research on the European banks' role in the crisis may finally help to resolve the issue. Far from being peripheral players in the crisis, European banks were deeply implicated in its causal origins as evidenced by their activities in the two US debt markets that were at the heart of the crisis: those for collateralised debt obligations (CDOs) and for asset backed commercial paper (ABCP). These activities would seem to lend weight to the conclusion that regulation and bank funding issues were the key causal variables in the financial crisis. However, it is a conclusion only made possible by ignoring the pre-crisis connection between the federal funds rate and the rate of ABCP demand from the institutional money market mutual funds (MMMFs). This paper argues that when this connection is closely examined, it turns out that the evidence surrounding the European banks' role in the financial crisis gives greater weight to the safe asset demand explanation of the crisis. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
47. Extreme Connectedness between Green Bonds, Government Bonds, Corporate Bonds and Other Asset Classes: Insights for Portfolio Investors.
- Author
-
Abakah, Emmanuel Joel Aikins, Tiwari, Aviral Kumar, Sharma, Aarzoo, and Mwamtambulo, Dorika Jeremiah
- Subjects
BONDS (Finance) ,GOVERNMENT securities ,GREEN bonds ,BOND market ,CORPORATE bonds ,STANDARD & Poor's 500 Index ,STOCK prices - Abstract
This paper aims to examine the connectedness between green and conventional assets, particularly during the period of economic downturn. Specifically, we examine quantile-based time-varying connectedness between the green bond market and other financial assets using quantile vector autoregression (QVAR) from 9 March 2018 to 10 March 2021. We use daily prices of S&P U.S. Treasury Bond Index, S&P US Aggregate Bond Index, S&P US Treasury Bond Current 10Y Index, S&P 500 Bond Index, S&P 500 Financials index, S&P 500 Energy Bond Index and S&P 500, giving a total of 784 observations, and using Composite Index as a representative of conventional assets classes and S&P Green Bond Index to denote the green bond market. Results shows the connectedness between green bonds and the conventional asset classes intensified during the outbreak of the Coronavirus pandemic (COVID-19) as investors shifted their investment towards fixed income assets due to the plunge in the prices of stocks and commodities. The results also shows that green bonds are strongly connected with treasury bonds, aggregate bonds and bond index, as they share similarities with respect to issuance, risk and governance. Connectedness is weak in the case of composite index and energy bond index, as their prices do not have substantial influence on the green bond market. The study highlights the hedging and diversification benefits of green bonds. We have several implications for portfolio managers, policy makers and researchers. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
48. Kicking Maturity Down the Road: Early Refinancing and Maturity Management in the Corporate Bond Market.
- Author
-
Xu, Qiping
- Subjects
MATURITY (Finance) ,REFINANCING ,CORPORATE bonds ,BOND market ,FINANCIAL management ,CORPORATE debt ,SPECULATION ,CREDIT - Abstract
This paper examines debt maturity management through early refinancing, where firms retire their outstanding bonds before the due date and simultaneously issue new ones as replacements. Speculative-grade firms frequently refinance their corporate bonds early to extend maturity, particularly under accommodating credit supply conditions, leading to a procyclical maturity structure. In contrast, investment-grade firms do not manage their maturity in the same manner. I exploit the protection period of callable bonds to show that the maturity extension is not driven by unobservable confounding factors. The evidence is consistent with speculative-grade firms dynamically managing maturity to mitigate refinancing risk. Received June 6, 2016; editorial decision September 21, 2017 by Editor Philip Strahan. [ABSTRACT FROM AUTHOR]
- Published
- 2018
- Full Text
- View/download PDF
49. Transaction cost analytics for corporate bonds.
- Author
-
Guo, Xin, Lehalle, Charles-Albert, and Xu, Renyuan
- Subjects
- *
SECURITIES trading , *SPREAD (Finance) , *CORPORATE bonds , *BOND market , *INDIVIDUAL investors , *COST analysis , *TRANSACTION costs - Abstract
Electronic platforms have been increasingly popular for executing large corporate bond orders by asset managers, who in turn have to assess the quality of their executions via Transaction Cost Analysis (TCA). One of the challenges in TCA is to build a realistic benchmark for the expected transaction cost and to characterize the price impact of each individual trade with given bond characteristics and market conditions. Taking the viewpoint of retail investors, this paper presents an analytical methodology for TCA of corporate bond trading. Our analysis is based on the TRACE Enhanced dataset; and starts with estimating the initiator of a bond transaction, followed by estimating the bid-ask spread and the mid-price dynamics. With these estimations, the first part of our study is to identify key features for corporate bonds and to compute the expected average trading cost. This part is on the time scale of weekly transactions, and is by applying and comparing several regularized regression models. The second part of our study is using the estimated mid-price dynamics to investigate the amplitude of its price impact and the decay pattern of individual bond transaction. This part is on the time scale of each transaction of liquid corporate bonds, and is by applying a transient impact model to estimate the price impact kernel using a non-parametric method. Our benchmark model allows for identifying abnormal transactions and for enhancing counter-party selections. A key discovery of our study is the price impact asymmetry between customer-buy orders and consumer-sell orders. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
50. Trade price clustering in the corporate bond market.
- Author
-
Cole, Brittany, Goldstein, Michael A., Moser, Shane M., and Van Ness, Robert A.
- Subjects
SECURITIES trading ,CORPORATE bonds ,BOND ratings ,BOND market ,BOND prices ,INFORMATION asymmetry ,PRICE increases ,STANDARD deviations - Abstract
Purpose: In this paper, the authors document the existence of price clustering in the US corporate bond market. Design/methodology/approach: Using a sample of 8,422,593 corporate bond trades in 2014, the authors find that over 18% (1,522,284 trades) of all bond trades end in a clustered price, defined as a price ending in 00, 25, 50, or 75. Findings: Overall, the authors find that both bond rating category and risk, as measured by standard deviation of prices, play a role in price clustering; speculative grade bonds account for the majority of clustered prices. Clustered prices are more likely to have higher coupon rates, higher prices, and higher standard deviations of price than bonds with non-clustered prices. Regardless of size, both buy and sell dealer trades with customers (relative to interdealer trading) lead to an increase in price clustering. Dealers appear to use clustered prices when purchasing from and selling to institutions and, therefore, may use a clustered price to insulate themselves from the risk of asymmetric information. Additionally, the prevalence of clustered prices for retail-sized dealer sell trades suggests that dealers exercise dealer power over retail-sized traders. Originality/value: This paper contributes to the literature on price clustering by examining trade price clustering of corporate bonds. It is different from previous papers on price clustering in equities. Given that bonds tend to be priced off of yield, it is unusual that trade prices cluster. It also demonstrates what kind of bonds cluster and with which customers dealers trade at clustered prices. It parallels other research in demonstrating dealer power over retail-sized traders. [ABSTRACT FROM AUTHOR]
- Published
- 2022
- Full Text
- View/download PDF
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