Liquidity premium in the eye of the beholder: An analysis of the clientele effect in the corporate bond market

Xuanjuan Chen, Jing Zhi Huang, Zhenzhen Sun, Tong Yao, Tong Yu

Research output: Contribution to journalArticle

1 Scopus citations

Abstract

This paper examines how liquidity and investors' heterogeneous liquidity preferences interact to affect asset pricing. Using data on insurers' corporate bond holdings, we find that illiquidity of corporate bond portfolios varieswidely and persistently across insurers and is related to insurers' investment horizon and funding constraint, consistent with the notion of liquidity clientele. We further find that liquidity clientele affects corporate bond prices-specifically, liquidity premia are lower among corporate bonds heavily held by investors with weaker preference for liquidity.

Original languageEnglish (US)
Pages (from-to)932-957
Number of pages26
JournalManagement Science
Volume66
Issue number2
DOIs
StatePublished - Jan 1 2020

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research

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