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Corporate bond multipliers: substitutes matter

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  • Chaudhary, Manav
  • Zhiyu Fu, Julie
  • Li, Jian

Abstract

Many economic questions require estimating the price effect of demand shifts (multipliers) in the bond market. Corporate bonds have salient characteristics that distinguish between close and distant substitutes. We show that accounting for heterogeneous substitutability between bonds is critical for correctly estimating multipliers. We find that security-level multipliers are very small. In fact, an order of magnitude smaller than the estimate ignoring heterogeneous substitutability. Nonetheless, portfolio multipliers are substantially larger and monotonically increase with the aggregation level. Furthermore, we find that the multiplier is larger for high-yield bonds, longer-maturity bonds, and bonds with greater arbitrage risks.

Suggested Citation

  • Chaudhary, Manav & Zhiyu Fu, Julie & Li, Jian, 2026. "Corporate bond multipliers: substitutes matter," LSE Research Online Documents on Economics 138916, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:138916
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    File URL: https://researchonline.lse.ac.uk/id/eprint/138916/
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    References listed on IDEAS

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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