Does Ownership Concentration Affect Corporate Bond Volatility? The Impact of Illiquidity
60 Pages Posted: 22 May 2020 Last revised: 6 Oct 2022
Date Written: April 12, 2020
This paper analyzes the relation 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 assets and experience higher or more correlated liquidity shocks. Using a sample of fund mergers, we further show that increases in bond volatility are not driven by the endogenous ownership structure of bonds, but rather the non-fundamental liquidity demand of large concentrated asset owners.
Keywords: Ownership concentration, bond volatility, corporate bonds, corporate bond funds, bond illiquidity, liquidity shocks, price fragility
JEL Classification: G12, G23
Suggested Citation: Suggested Citation