Crowded ratings: clientele effects in the corporate bond market
Subject
Finance, Finance
Publishing details
Social Sciences Research Network
Authors / Editors
Gomes F; Lewis R; Nickerson J
Biographies
Publication Year
2020
Abstract
Consistent with a simple model of market segmentation, we document rating-based clientele effects in the corporate bond market. Net capital flows that arise due to idiosyncratic firm upgrades and downgrades cause significant price movements for the other bonds in the effected rating bucket. A one-standard-deviation flow into a rating bucket generates a 5 bp bond price reduction, equivalent to 4.1% of the monthly price variation driven by macro variables. This effect is highly persistent, with an approximate half-life of five months. Guided by the model, we also document a significant decaying spillover pattern to bond prices in adjacent buckets.
Keywords
Credit ratings; Clientele effects; Corporate bond pricing; Market segmentation
Series Number
3707588
Series
Social Sciences Research Network