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Understanding the Ownership Structure of Corporate Bonds

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  • Ralph S. J. Koijen
  • Motohiro Yogo

Abstract

Insurers are the largest institutional investors of corporate bonds. However, a standard theory of insurance markets, in which insurers maximize firm value subject to regulatory or risk constraints, predicts no allocation to corporate bonds. We resolve this puzzle in an equilibrium asset pricing model with leverage-constrained households and institutional investors. Insurers have relatively cheap access to leverage through their underwriting activity. They hold a leveraged portfolio of low-beta assets in equilibrium, relaxing other investors’ leverage constraints. The model explains recent empirical findings on insurers’ portfolio choice and its impact on asset prices.

Suggested Citation

  • Ralph S. J. Koijen & Motohiro Yogo, 2022. "Understanding the Ownership Structure of Corporate Bonds," NBER Working Papers 29679, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29679
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    Cited by:

    1. Yuchen Li & Zongxia Liang & Shunzhi Pang, 2022. "Continuous-Time Monotone Mean-Variance Portfolio Selection," Papers 2211.12168, arXiv.org, revised Jan 2024.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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