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On the Relative Performance of Investment‐Grade Corporate Bonds with Differing Maturities
Author(s) -
DeCosta Darrin,
Leng Fei,
Noronha Gregory
Publication year - 2017
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12167
Subject(s) - bond , arbitrage , maturity (psychological) , extant taxon , monetary economics , business , investment (military) , term (time) , corporate bond , financial economics , economics , finance , physics , psychology , developmental psychology , quantum mechanics , evolutionary biology , politics , political science , law , biology
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.