Regulatory pressure and fire sales in the corporate bond market

• 成果类型: Article
• 署名作者: Ellul, Andrew; Jotikasthira, Chotibhak; Lundblad, Christian T.
• 署名单位: University of North Carolina; University of North Carolina Chapel Hill; Indiana University System; Indiana University Bloomington
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2011.03.020
• 发表日期: 2011
• 页码: 596-620
• 关键词: Fire sales; regulation; PRICE PRESSURE; liquidity; Corporate bonds; Insurance companies

摘要

This paper investigates fire sales of downgraded corporate bonds induced by regulatory constraints imposed on insurance companies. As insurance companies hold over one-third of investment-grade corporate bonds, the collective need to divest downgraded issues may be limited by a scarcity of counterparties. Using insurance company transaction data, we find that insurance companies that are relatively more constrained by regulation are more likely to sell downgraded bonds. Bonds subject to a high probability of regulatory-induced selling exhibit price declines and subsequent reversals. These price effects appear larger during periods when the insurance industry is relatively distressed and other potential buyers' carpital is scarce. (C) 2011 Elsevier B.V. All rights reserved.