Does Uncertain Credit Information Quality Matter for Bond Funds?
60 Pages Posted: 15 Feb 2022
Date Written: January 11, 2022
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
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