 Crossing boundaries beyond the investment grade: Induced trading by rating-contingent investment constraintsPilar Abad, Antonio Díaz, Ana Escribano and M. Dolores Robles Fernandez Journal of Corporate Finance, 2021, vol. 67, issue C Abstract: Institutional portfolio managers face rating-based constraints established by investment policy statements (IPS) in their delegated management which, similar to formal regulations, restrict investment in bonds below certain rating levels. We analyze how prices and liquidity of corporate bonds traded by institutional investors react to downgrades crossing these internal limits. Consistent with the existence of a non-regulatory transmission channel, downgrades through regular IPS ratings have a greater impact on the market than downgrades crossing regulatory boundaries, such as the investment-speculative frontier and the NAIC's risk-based capital system thresholds. Our results reveal the existence of other source of rating-related frictions that should be considered. Keywords: Rating changes; Investment policy statements; Corporate bonds; Rating-contingent investment constraints (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:67:y:2021:i:c:s0929119921000249 DOI: 10.1016/j.jcorpfin.2021.101903 Access Statistics for this article Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter More articles in Journal of Corporate Finance from Elsevier |
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