The Value of Value Investors

52 Pages Posted: 12 Jul 2022 Last revised: 27 Feb 2023

See all articles by Maureen O'Hara

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management

Andreas C. Rapp

Board of Governors of the Federal Reserve System

Xing (Alex) Zhou

Southern Methodist University (SMU) - Finance Department

Date Written: November 1, 2021

Abstract

We examine the role of insurance companies as value investors in the corporate bond market. We show that during the COVID-19 liquidity crisis, insurers acted as “buyers of last resort” and increased their corporate bond positions, particularly in bonds facing fire sales by mutual funds. Insurers with more stable insurance funding were more likely to buy, and they bought more from dealers with whom they had prior trading relationships. We find that the stability of the insurance funding of insurers plays an important role for the liquidity conditions in the corporate bond market. Dealers improve their liquidity provision when they have trading relationships with insurers with more stable insurance funding. Our work demonstrates the value of value investors during times of stress.

Keywords: Corporate Bond, Liquidity, Value Investor, Relationship, COVID-19, Insurance Company, Dealer, Mutual Fund.

JEL Classification: G10, G12, G20, G22, G23, G24

Suggested Citation

O'Hara, Maureen and Rapp, Andreas C. and Zhou, Xing (Alex), The Value of Value Investors (November 1, 2021). Available at SSRN: https://ssrn.com/abstract=4151934 or http://dx.doi.org/10.2139/ssrn.4151934

Maureen O'Hara

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States
607-255-3645 (Phone)
607-255-5993 (Fax)

Andreas C. Rapp

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://https://www.federalreserve.gov/econres/andreas-c-rapp.htm

Xing (Alex) Zhou (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

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