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The real effects of forced sales of corporate bonds

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  • Aslan, Hadiye
  • Kumar, Praveen

Abstract

What are the real effects of forced sales of corporate securities? Our theoretical analysis shows that model uncertainty can generate distorted negative (positive) capital investment effects during price declines (reversals) in equilibrium when there is information feedback from financial markets. Empirically, we find that forced sales of corporate bonds by financial institutions had a significant negative impact on the capital investment and product market competitiveness — measured by market shares and price-cost margins — of exposed firms during the financial crisis. These adverse real effects on exposed firms were also vertically transmitted to their suppliers and customers.

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  • Aslan, Hadiye & Kumar, Praveen, 2018. "The real effects of forced sales of corporate bonds," Journal of Monetary Economics, Elsevier, vol. 95(C), pages 1-17.
    • Handle: RePEc:eee:moneco:v:95:y:2018:i:c:p:1-17
    DOI: 10.1016/j.jmoneco.2018.02.004
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    More about this item

    Keywords

    Forced sales; Corporate bonds; Subprime mortgage crisis; Capital investment; Product markets;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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