Corporate bond multipliers: substitutes matter

Manav Chaudhary, Julie Zhiyu Fu and Jian Li

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Many economic questions require estimating the price effect of demand shifts (multipliers) in the bond market. Corporate bonds have salient characteristics that distin guish close versus distant substitutes. We show that accounting for the heterogeneous substitutability between bonds is critical for estimating multipliers correctly. By al lowing for heterogeneous substitution, we find that security-level multipliers are very small—an order of magnitude smaller than the estimate ignoring heterogeneous substi tutability. Nonetheless, portfolio multipliers are substantially larger and monotonically increase with the aggregation level. Furthermore, we find that the multiplier is larger for high-yield bonds, longer-maturity bonds, and bonds with greater arbitrage risks.

Keywords: corporate bonds; inelastic demand; mutual funds; demand-based asset pricing (search for similar items in EconPapers)
JEL-codes: G10 G12 G23 (search for similar items in EconPapers)
Date: 2026-09-19
New Economics Papers: this item is included in nep-ifn
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Published in Review of Financial Studies, 19, September, 2026. ISSN: 0893-9454

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