Is Corporate Bond Financing Arm’s Length? Evidence from Life Insurers’ Bond Purchases
(with Ali Ozdagli)
Although corporate bonds are conventionally viewed as arm’s-length financing, we document features consistent with relationship lending between issuers and life insurers, the largest institutional bond investors. A life insurer purchases a larger share of a new bond issue when it already holds a larger share of the issuer’s outstanding bonds. This familiarity-based lending intensifies with prior insurer-issuer engagement and is stronger in private placements, a market under recent regulatory scrutiny, where information and relationships are more valuable. Insurers profit more from familiarity-based lending, particularly with opaque issues. Familiar issuers benefit during downturns, as reflected in higher bond and stock returns.
Presentations: NBER Insurance Working Group 2023* ; WFA 2021*
* indicates presentation by coauthor
Previously circulated under the title "Is Public Debt Arm's Length? Evidence from Corporate Bond Purchases of Life Insurance Companies".
I study the incentives for launching new mutual funds and ETFs. First, I document several facts showing that new mutual funds are systematically different from incumbents. New funds are less correlated with competitors than extant funds, and have systematically different factor, sector, and regional tilts. I show that these tilts can be explained by the ideas of fund managers, as reflected in the active portion of a fund manager's portfolios. Moreover, I show that new funds differentiate themselves from extant funds. These results suggest that new funds are created to test new investment ideas, as well as cater to demand for diversification.
Presentations: MFS Workshop PhD Poster Session (November 2025); Yiran Fan Memorial Conference PhD Poster Session (May 2025)
Winner of Yiran Fan fellowship for best third-year paper in Finance, University of Chicago Booth School of Business.
I propose a new methodology to help disentangle the demand drivers of government and corporate bond risk premia. I model and estimate a demand system where the set of available assets has a strict factor structure and where investors have a benchmarking motive. The demand curve relates an investor’s portfolio factor loadings to the factors’ risk premia and the factor loadings of a benchmark portfolio. I estimate this demand system for institutional investors in the Treasury and corporate bond markets. I use the estimated demand curves, along with a market clearing condition, to study how investor composition affects equilibrium bond yields.
Presentations: MFS Workshop PhD Poster Session (May 2024)
Winner of Liew Fama-Miller Prize for best second-year paper in Finance, University of Chicago Booth School of Business. This research was funded in part by the John and Serena Liew Fellowship Fund at the Fama-Miller Center for Research in Finance, University of Chicago Booth School of Business.