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Reaching for Yield in the Bond Market

The Journal of finance (New York), 2015-10, Vol.70 (5), p.1863-1902 [Peer Reviewed Journal]

2015 American Finance Association ;2015 The American Finance Association ;Copyright Blackwell Publishers Inc. Oct 2015 ;ISSN: 0022-1082 ;ISSN: 1540-6261 ;EISSN: 1540-6261 ;DOI: 10.1111/jofi.12199 ;CODEN: JLFIAN

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  • Title:
    Reaching for Yield in the Bond Market
  • Author: BECKER, BO ; IVASHINA, VICTORIA
  • Subjects: Assets ; Bond market ; Bond markets ; Bond ratings ; Business cycles ; Capital requirements ; Corporate governance ; Insurance companies ; Insurance industry ; Investment policy ; Investors ; Studies ; Yield
  • Is Part Of: The Journal of finance (New York), 2015-10, Vol.70 (5), p.1863-1902
  • Description: This paper studies reaching for yield—investors' propensity to buy riskier assets to achieve higher yields—in the corporate bond market. We show that insurance companies reach for yield in choosing their investments. Consistent with lower rated bonds bearing higher capital requirements, insurance firms prefer to hold higher rated bonds. However, conditional on credit ratings, insurance portfolios are systematically biased toward higher yield, higher CDS bonds. This behavior is related to the business cycle being most pronounced during economic expansions. It is also characteristic of firms with poor corporate governance and for which the regulatory capital requirement is more binding.
  • Publisher: Cambridge: Blackwell Publishing Ltd
  • Language: English
  • Identifier: ISSN: 0022-1082
    ISSN: 1540-6261
    EISSN: 1540-6261
    DOI: 10.1111/jofi.12199
    CODEN: JLFIAN
  • Source: Alma/SFX Local Collection
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