Download This PaperDoes Ownership Concentration Affect Corporate Bond Volatility? Evidence from Bond Mutual Funds
57 Pages Posted: 22 May 2020 Last revised: 13 Nov 2024
Date Written: May 12, 2024
Abstract
This paper examines the link between ownership concentration and corporate bond volatility. We show that more concentrated mutual fund ownership is associated with higher volatility of corporate bonds. This relation is stronger among more illiquid bonds, during periods of heightened bond market illiquidity, and among bonds held by corporate bond funds that invest in more illiquid bonds and experience higher or more correlated liquidity shocks. Using a sample of mutual fund mergers, we further show that increases in bond volatility are unlikely to be driven entirely by the endogenous ownership structure of corporate bonds. Our findings suggest that the concentrated ownership by corporate bond mutual funds provides another channel, apart from illiquidity, to help explain the excess volatility in corporate bonds.
Keywords: Excess corporate bond volatility, ownership concentration, corporate bond illiquidity, corporate bond mutual funds, liquidity shocks, price fragility
JEL Classification: G12, G23
Suggested Citation: Suggested Citation