Does ownership concentration affect corporate bond volatility? The role of illiquidity
This paper analyzes the relation between ownership concentration and corporate bond volatility. We show that increased ownership concentration is associated with higher volatility of corporate bonds. This relation is stronger among more illiquid bonds, during periods of heightened bond market illiquidity, and among the bonds held by corporate bond funds that invest in more illiquid assets and experience higher or correlated liquidity shocks. Using a sample of mutual fund mergers, we further show that increases in bond volatility are not driven by the endogenous ownership structure of bonds but rather the non-fundamental liquidity demand of large concentrated asset owners.