Understanding the Ownership Structure of Corporate Bonds

Ralph S. J. Koijen and Motohiro Yogo

American Economic Review: Insights, 2023, vol. 5, issue 1, 73-92

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: G11 G12 G22 G23 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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DOI: 10.1257/aeri.20210550

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