Topic: Fire Sales and Liquidity Provision in the Corporate
Bond Market
Speaker: Xinde Zhang, Assistant Professor of Finance, Shanghai University of
Finance and Economics.
Date: June 3rd (Wed.)
Time: 12:30pm-1:30pm
Location: Building
1, Room 501, Faculty Lounge
Language: English
Abstract:
We
investigate the role of corporate-bond mutual funds in providing liquidity to
insurance companies that are forced to sell downgraded corporate bonds due to
regulatory constraints (Ellul, Jotikasthira, and Lundblad, 2011). First, corporate-bond
mutual funds are important liquidity providers to insurance companies during
fire sale events, purchasing about 24% of fire sale bonds during the downgrading
quarter. Second, our results support the slow-moving capital theories (Duffie,
2010) based on searching costs and limited capital capacity of financial
intermediaries. We find that fire sale bonds receiving less liquidity provision
from mutual funds experience larger price drop and longer recovery period.
Third, corporate-bond mutual funds benefit from liquidity provision to
insurance companies. Fund managers most actively and persistently engaging in
liquidity provision demonstrate superior overall selection and timing skills in
corporate bond investments.
About the speaker:
Xinde
Zhang is an assistant professor of finance at Shanghai University of Finance
and Economics. He teaches Financial Management and Corporate Finance for
undergraduate students and EMBA students, and Corporate Finance Theory for doctoral
students. His primary research interest is corporate governance. He earned a
Ph.D. in finance and Master in mathematics from University of North Carolina at
Charlotte and Youngstown University respectively. He joined School of Finance at
Shanghai University of Finance and Economics in 2010. From 2013 to 2014, he was
a Chazen Visiting Scholar at Columbia Business School of Columbia University.
