Rainy Day Liquidity

58 Pages Posted: 3 Jun 2019 Last revised: 16 Jun 2020

See all articles by Jing-Zhi Huang

Jing-Zhi Huang

Pennsylvania State University - University Park - Department of Finance

Xin Li

University of Cincinnati - Department of Finance - Real Estate

Mehmet Saglam

University of Cincinnati - Department of Finance - Real Estate

Tong Yu

University of Cincinnati - Department of Finance - Real Estate

Date Written: May 12, 2019

Abstract

Insurance firms are a key player in the corporate bond market. In this study, we consider the role of life insurers as "rainy day" liquidity providers who improve liquidity in stressful conditions due to the nature of long-term buy-and-hold investments. To this end, we present evidence that insurers' corporate bond purchases improve bond liquidity during the financial crisis and among downgraded bonds facing selling pressure. Life insurers are net purchasers of downgraded bonds within investment grades. Downgraded bonds with greater purchases from life insurers are significantly better priced.

Keywords: Liquidity provision, Market liquidity, Corporate bonds, Funding liquidity, Search

JEL Classification: G11, G22

Suggested Citation

Huang, Jing-Zhi Jay and Li, Xin and Saglam, Mehmet and Yu, Tong, Rainy Day Liquidity (May 12, 2019). Available at SSRN: https://ssrn.com/abstract=3387065 or http://dx.doi.org/10.2139/ssrn.3387065

Jing-Zhi Jay Huang

Pennsylvania State University - University Park - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://www.personal.psu.edu/jxh56

Xin Li (Contact Author)

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States

Mehmet Saglam

University of Cincinnati - Department of Finance - Real Estate ( email )

Carl H. Lindner College of Business
Cincinnati, OH 45221
United States
(513) 556-9108 (Phone)

HOME PAGE: http://homepages.uc.edu/~saglammt/

Tong Yu

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States
4019548606 (Phone)
4019548606 (Fax)

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