IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v70y2024i9p5709-5730.html
   My bibliography  Save this article

Breadth of Ownership and the Cross-Section of Corporate Bond Returns

Author

Listed:
  • Jing-Zhi Huang

    (Smeal College of Business, The Pennsylvania State University, University Park, Pennsylvania 16802)

  • Nan Qin

    (College of Business, Northern Illinois University, DeKalb, Illinois 60115)

  • Ying Wang

    (School of Business and Center for Institutional Investment Management, State University of New York at Albany, Albany, New York 12222)

Abstract

Using breadth of corporate bond fund ownership to proxy for the combination of short-sale constraints and divergence of opinions in the corporate bond market, this paper investigates whether and to what extent Miller’s overpricing theory holds for corporate bonds. Consistent with the theory, we document a significant and positive relation between changes in breadth and the cross-section of future corporate bond returns. Because of the bounded upside of debt, the ability of changes in breadth to predict returns appears to be less pronounced for corporate bonds relative to stocks. Furthermore, this predictability is stronger among bonds with higher credit risk, indicating that the effect of short-sale constraints and divergence of opinions on bond mispricing tends to be larger for riskier bonds with more upside potential and, thus, more scope for overvaluation.

Suggested Citation

  • Jing-Zhi Huang & Nan Qin & Ying Wang, 2024. "Breadth of Ownership and the Cross-Section of Corporate Bond Returns," Management Science, INFORMS, vol. 70(9), pages 5709-5730, September.
    • Handle: RePEc:inm:ormnsc:v:70:y:2024:i:9:p:5709-5730
    DOI: 10.1287/mnsc.2023.4950
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2023.4950
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2023.4950?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:70:y:2024:i:9:p:5709-5730. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.