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.
All Science Journal Classification (ASJC) codes
- Strategy and Management
- Management Science and Operations Research