The Role of Institutional Investors in Propagating the Crisis of 2007-2008

59 Pages Posted: 20 Mar 2013  

Alberto Manconi

Bocconi University - Department of Finance; Tilburg University

Massimo Massa

INSEAD - Finance

Ayako Yasuda

University of California, Davis - Graduate School of Management

Date Written: June 1, 2012

Abstract

Using novel data on investors’ bond portfolios, we study the contagion of the crisis from securitized bonds to corporate bonds. When securitized bonds became “toxic” in August 2007, mutual funds retained the now illiquid securitized bonds and sold corporate bonds. Funds with negative flows or high liquidity needs liquidated more than others. Yield spreads increased more for corporate bonds whose pre-crisis bondholders were more heavily exposed to securitized bonds, compared to same-issuer bonds held by unexposed investors. The findings suggest that liquidity-constrained investors with exposure to securitized bonds played a role in propagating the crisis from securitized to corporate bonds.

Keywords: crisis transmission, securitized bonds, corporate bonds, liquidity channel

JEL Classification: G1, G2, G11, G12, G21, G22, G23

Suggested Citation

Manconi, Alberto and Massa, Massimo and Yasuda, Ayako, The Role of Institutional Investors in Propagating the Crisis of 2007-2008 (June 1, 2012). Journal of Financial Economics (JFE), Vol. 104, No. 3, 2012. Available at SSRN: https://ssrn.com/abstract=2235923

Alberto Manconi

Bocconi University - Department of Finance ( email )

Via Roentgen 1
Milano, MI 20136
Italy

HOME PAGE: http://mypage.unibocconi.eu/albertomanconi/

Tilburg University ( email )

PO Box 19153
Tilburg, DC 5000 LE
Netherlands

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Ayako Yasuda (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-0775 (Phone)
530-752-2924 (Fax)

HOME PAGE: http://www.ayakoyasuda.com

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