Understanding the ownership structure of corporate bonds
By: Koijen, Ralph S. J. and Yogo, Motohiro
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Material type: 
BookPublisher: American Economic Review: Insights Description: 5(1), Mar, 2023: p.73-92.
In:
American Economic Review: InsightsSummary: 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.- Reproduced
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 5(1), Mar, 2023: p.73-92 | Available | AR128632 |
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.- Reproduced
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