On the Dynamics of Corporate Bond Ownership
67 Pages Posted: 14 Aug 2014 Last revised: 9 May 2016
Date Written: February 29, 2016
We examine the dynamic ownership structure of corporate bonds after initial issuance. We find that as bonds “season”, the market learns more about them. This learning leads to less concentrated bond ownership over time. Specifically, learning induces a shift in bond ownership from more informed short-term investors to less informed long-term investors. This shift in ownership is accompanied by reduced trading volume and lower expected returns. Utilizing firm-level credit rating reports from Standard & Poor’s, we identify that the source of learning is related to macro- and industry-level information and the term structure of interest rate rather than firm-level cash flow news. Our results suggest that regulations that facilitate easier access to information and better learning, such as centralizing corporate bond trading, could encourage more participation and benefit a wider spectrum of investors.
Keywords: corporate bonds; credit risk, institutional ownership; learning
JEL Classification: G11, G14, G23
Suggested Citation: Suggested Citation