Understanding the Ownership Structure of Corporate Bonds

Ralph Koijen and Motohiro Yogo

No 29679, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Insurers are the largest institutional investors of corporate bonds. However, a standard theory of insurance markets, in which insurers maximize firm value subject to regulatory or risk constraints, predicts no allocation to corporate bonds. We resolve this puzzle in an equilibrium asset pricing model with leverage-constrained households and institutional investors. Insurers have relatively cheap access to leverage through their underwriting activity. They hold a leveraged portfolio of low-beta assets in equilibrium, relaxing other investors’ leverage constraints. The model explains recent empirical findings on insurers’ portfolio choice and its impact on asset prices.

JEL-codes: G12 G22 (search for similar items in EconPapers)
Date: 2022-01
New Economics Papers: this item is included in nep-fdg, nep-fmk, nep-ias and nep-ore
Note: AP CF
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Citations: View citations in EconPapers (1)

Published as Ralph S.J. Koijen & Motohiro Yogo, 2023. "Understanding the Ownership Structure of Corporate Bonds," American Economic Review: Insights, vol 5(1), pages 73-91.

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