Does Uncertain Credit Information Quality Matter for Bond Funds?

60 Pages Posted: 15 Feb 2022

See all articles by Hwagyun Kim

Hwagyun Kim

Texas A&M University - Mays Business School

Ju Hyun Kim

Ajou University - School of Business

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: January 11, 2022

Abstract

Credit information quality is uncertain and varies across corporate bonds. We hypothesize that bond funds adjust their bond holdings to reduce perceived credit quality uncertainty if fund managers dislike ambiguity. Using statistical proximity measures of firm survival probabilities predicted by credit rating agencies, we show that data strongly support the hypothesis. For identification, we use fund-level quarterly security holdings in the U.S. The findings are robust to alternative panel specifications, various controls, and alternative uncertainty measures. Among financial institutions, insurance companies show more significant results than mutual funds, and firms with lower churn rates react more to ambiguous credit information.

Keywords: Ambiguity, Credit Information Uncertainty, Corporate Bond, Institutional Bond Investor, Trading Behavior

JEL Classification: G11, G12, G14, G24, D81

Suggested Citation

Kim, Hwagyun and Kim, Ju Hyun and Yang, Nan, Does Uncertain Credit Information Quality Matter for Bond Funds? (January 11, 2022). Available at SSRN: https://ssrn.com/abstract=4005689 or http://dx.doi.org/10.2139/ssrn.4005689

Hwagyun Kim (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4218
United States

Ju Hyun Kim

Ajou University - School of Business ( email )

206 Worldcup-ro
Yeongtong-gu
Suwon
Korea, Republic of (South Korea)

Nan Yang

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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