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Commonality in Credit Spread Changes: Dealer Inventory and Intermediary Distress.
- Source :
- Review of Financial Studies; Oct2022, Vol. 35 Issue 10, p4630-4673, 44p
- Publication Year :
- 2022
-
Abstract
- Two intermediary-based factors—a corporate bond dealer inventory measure and a broad intermediary distress measure—explain more than 40 |$\%$| of the puzzling common variation in credit spread changes beyond canonical structural factors. A simple intermediary-based model with partial market segmentation accounts for intermediary factors' explanatory power and delivers three further implications with empirical support. First, whereas bond sorts on risk-related variables produce monotonic loading patterns on intermediary factors, non-risk-related sorts produce no pattern. Second, dealer inventory comoves with corporate-credit assets only, whereas intermediary distress comoves with both corporate-credit and non-corporate-credit assets. Third, dealers' inventory responds to (instrumented) bond sales by institutional investors. [ABSTRACT FROM AUTHOR]
Details
- Language :
- English
- ISSN :
- 08939454
- Volume :
- 35
- Issue :
- 10
- Database :
- Complementary Index
- Journal :
- Review of Financial Studies
- Publication Type :
- Academic Journal
- Accession number :
- 159191135
- Full Text :
- https://doi.org/10.1093/rfs/hhac004