Corporate Bond Flipping

Abstract

In this paper, we provide the first empirical evidence on corporate bond flipping. Analyzing 2002-2018 insurer trades, we show that when flipping their allocation in an offering, insurers avoid selling to the underwriters despite underwriters providing better prices. Offerings with worse aftermarket performance are flipped less, but the flipping-to-performance sensitivity is similar when flipping to underwriters or non-underwriters, suggesting that underwriters discourage flipping in both overpriced and underpriced offerings. Insurers flipping to the underwriters receive less profitable allocations in these underwriters' subsequent offerings. Our findings suggest that underwriters can partially limit flipping by using their allocation discretion to penalize flippers.

Keywords: Corporate bonds, primary market, secondary market, allocations, flipping, underpricing, insurance companies, underwriters, dealers

JEL Classification: G14, G22, G24, G28, G30