Fallen Angels and Price Pressure

44 Pages Posted: 8 Mar 2011

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

Kelly Nianyun Cai

University of Michigan at Dearborn - School of Management

Jean Helwege

UC Riverside

Multiple version iconThere are 2 versions of this paper

Date Written: March 8, 2011

Abstract

We examine price pressure in a setting where trades occur because of regulations and when information effects are absent. Our study of fallen angel bond sales by insurance companies shows that price pressure is negligible, if not non-existent. We attribute our results to the fact that the trades occur when fundamentals are unchanged and dealers know that the sales are not motivated by private information about future returns. Our results confirm the predictions of Admati and Pfleiderer (1991) and Roell (1990) that sellers will benefit from a higher price when dealers recognize that they are uninformed. We find that insurers do not attempt to hide their trades by selling bonds before they are downgraded, consistent with following a strategy of sunshine trading.

Keywords: price pressure, sunshine trading, informed trader, fallen angel bonds, insurance

JEL Classification: G10, G12

Suggested Citation

Ambrose, Brent W. and Cai, Kelly Nianyun and Helwege, Jean, Fallen Angels and Price Pressure (March 8, 2011). Available at SSRN: https://ssrn.com/abstract=1781196 or http://dx.doi.org/10.2139/ssrn.1781196

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

Kelly Nianyun Cai (Contact Author)

University of Michigan at Dearborn - School of Management ( email )

19000 Hubbard Dr.
Dearborn, MI 48126
United States

Jean Helwege

UC Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
9518274284 (Phone)

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