Footnote:
In: Journal of Financial Economics (JFE), Vol. 101, No. 3, 2011
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments February 28, 2011 erstellt
Description:
This paper investigates fire sales of downgraded corporate bonds induced by regulatory constraints imposed on insurance companies. As insurance companies hold over one-third of investment-grade corporate bonds, the collective need to divest downgraded issues may be limited by a scarcity of counterparties. Using insurance company transaction data, we find that insurance companies that are relatively more constrained by regulation are more likely to sell downgraded bonds. Bonds subject to a high probability of regulatory-induced selling exhibit price declines and subsequent reversals. These price effects appear larger during periods when the insurance industry is relatively distressed and other potential buyers' capital is scarce