Interconnectedness in the Corporate Bond Market

Celso Brunetti, Matthew Carl (), Jacob Gerszten, Chiara Scotti and Chaehee Shin
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Chaehee Shin: https://www.federalreserve.gov/econres/chaehee-shin.htm

No 2024-066, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Does interconnectedness improve market quality? Yes.We develop an alternative network structure, the assets network: assets are connected if they are held by the same investors. We use several large datasets to build the assets network for the corporate bond market. Through careful identification strategies based on the COVID-19 shock and “fallen angels,” we find that interconnectedness improves market quality especially during stress periods. Our findings contribute to the debate on the role of interconnectedness in financial markets and show that highly interconnected corporate bonds allow for risk sharing and require a lower compensation for risk.

Keywords: Financial stability; Interconnectedness; Institutional investors; Big data (search for similar items in EconPapers)
JEL-codes: C13 C55 C58 G10 (search for similar items in EconPapers)
Pages: 57 p.
Date: 2024-08-16
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-net
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-66

DOI: 10.17016/FEDS.2024.066

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