On the Relative Performance of Investment‐Grade Corporate Bonds with Differing Maturities. Issue 4 (22nd March 2017)

• Record Type: Journal Article
• Authors: DeCosta, Darrin; Leng, Fei; Noronha, Gregory
• Is Part Of: Financial management. Volume 46:Issue 4(2017:Winter)
• Page Start: 839
• Page End: 872
• Publication Date: 2017-03-22
• Subjects: Corporations -- Finance -- Periodicals; 658.1505
• DOI: 10.1111/fima.12167
• Languages: English
• ISSNs: 0046-3892

Abstract

Abstract: We find that short‐maturity investment‐grade corporate bonds perform better, controlling for risk differences, than similar bonds with longer maturities. Our results are at least partially attributable to insurance companies' trading behavior and align with the preferred‐habitat theory of the term structure. We find that insurance‐company purchases create a strong demand for long‐term bonds and that their rebalancing activity results in sales of short‐term bonds. As documented by extant literature, such demand‐supply imbalance is not easily resolved by arbitrageurs or firms seeking to time the market with bond issuance.