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The market for borrowing corporate bonds

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  • Asquith, Paul
  • Au, Andrea S.
  • Covert, Thomas
  • Pathak, Parag A.

Abstract

This paper describes the market for borrowing corporate bonds using a comprehensive data set from a major lender. The cost of borrowing corporate bonds is comparable to the cost of borrowing stock, between 10 and 20 basis points, and both have fallen over time. Factors that influence borrowing costs are loan size, percentage of inventory lent, rating, and borrower identity. There is no evidence that bond short sellers have private information. Bonds with Credit Default Swaps (CDS) contracts are more actively lent than those without. Finally, the 2007 Credit Crunch does not affect average borrowing costs or loan volume, but does increase borrowing cost variance.

Suggested Citation

  • Asquith, Paul & Au, Andrea S. & Covert, Thomas & Pathak, Parag A., 2013. "The market for borrowing corporate bonds," Journal of Financial Economics, Elsevier, vol. 107(1), pages 155-182.
  • Handle: RePEc:eee:jfinec:v:107:y:2013:i:1:p:155-182
    DOI: 10.1016/j.jfineco.2012.08.007
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    More about this item

    Keywords

    Short sales; Securities lending; Corporate bonds; CDS;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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