On the Dynamics of Corporate Bond Ownership

67 Pages Posted: 14 Aug 2014 Last revised: 9 May 2016

See all articles by Massimo Massa

Massimo Massa

INSEAD - Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Weina Zhang

Department of Finance, National University of Singapore; National University of Singapore Risk Management Institute

Date Written: February 29, 2016

Abstract

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

Massa, Massimo and Zhang, Hong and Zhang, Weina, On the Dynamics of Corporate Bond Ownership (February 29, 2016). Available at SSRN: https://ssrn.com/abstract=2479775 or http://dx.doi.org/10.2139/ssrn.2479775

Massimo Massa

INSEAD - Finance ( email )

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

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

Weina Zhang (Contact Author)

Department of Finance, National University of Singapore ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
65168120 (Phone)
67792083 (Fax)

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/108-weina

National University of Singapore Risk Management Institute ( email )

21 Heng Mui Keng Terrace
Level 4
Singapore, 119613
Singapore

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