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Institutional Corporate Bond Pricing

Author

Listed:
  • Lorenzo Bretscher
  • Lukas Schmid
  • Ishita Sen
  • Varun Sharma

Abstract

We propose an equilibrium corporate bond pricing model that accommodates the heterogeneity in institutional investors’ preferences and mandates in an empirically tractable way. Our model, estimated on rich holdings data, quantifies investors’ preferences and demand elasticities, with inelastic insurers focusing on the investment-grade segment, and elastic mutual funds substituting across ratings groups. The model offers a novel quantitative perspective of the effect of recent trends in institutional ownership on equilibrium credit spreads and the funding costs of corporations. Overall, our model emphasizes the composition of institutional demand as an important state variable for corporate bond pricing.

Suggested Citation

  • Lorenzo Bretscher & Lukas Schmid & Ishita Sen & Varun Sharma, 2026. "Institutional Corporate Bond Pricing," The Review of Financial Studies, Society for Financial Studies, vol. 39(3), pages 605-660.
    • Handle: RePEc:oup:rfinst:v:39:y:2026:i:3:p:605-660.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhaf067
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    Keywords

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    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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