Download This PaperRainy Day Liquidity
Management Science, 0[10.1287/mnsc.2021.02994]
58 Pages Posted: 3 Jun 2019 Last revised: 5 Aug 2025
Date Written: May 12, 2019
Abstract
We investigate the role of insurers in providing liquidity in the corporate bond market, especially during "rainy days" when the aggregate dealer inventory is positive for a relatively large fraction of the outstanding bonds. We find that on average life insurers have positive liquidity supply in the years following the 2007--2009 financial crisis, primarily driven by their buy-side transactions. Insurers' corporate bond purchases improve the liquidity of transacted bonds and comparable bonds on rainy days. Using unusual weather-related losses realized in the affiliated property and casualty division as an instrumental variable, we show that corporate bonds purchased more by insurers have higher liquidity in subsequent periods.
Keywords: Liquidity provision, Market liquidity, Corporate bonds, Funding liquidity, Life insurance
JEL Classification: G11, G22
Suggested Citation: Suggested Citation
Mehmet Saglam
University of Cincinnati - Department of Finance - Real Estate ( email )
Carl H. Lindner College of Business
Cincinnati, OH 45221
United States
(513) 556-9108 (Phone)
HOME PAGE: http://homepages.uc.edu/~saglammt/