The real effects of forced sales of corporate bonds

Hadiye Aslan and Praveen Kumar

Journal of Monetary Economics, 2018, vol. 95, issue C, 1-17

Abstract: What are the real effects of forced sales of corporate securities? Our theoretical analysis shows that model uncertainty can generate distorted negative (positive) capital investment effects during price declines (reversals) in equilibrium when there is information feedback from financial markets. Empirically, we find that forced sales of corporate bonds by financial institutions had a significant negative impact on the capital investment and product market competitiveness — measured by market shares and price-cost margins — of exposed firms during the financial crisis. These adverse real effects on exposed firms were also vertically transmitted to their suppliers and customers.

Keywords: Forced sales; Corporate bonds; Subprime mortgage crisis; Capital investment; Product markets (search for similar items in EconPapers)
JEL-codes: G11 G14 G22 G23 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:95:y:2018:i:c:p:1-17

DOI: 10.1016/j.jmoneco.2018.02.004

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