Asset mispricing

We use a unique sample of corporate bonds guaranteed by the full faith and credit of the US to test recent theories about why asset prices may diverge from fundamental values. A key feature of our study is access to proprietary data on the haircuts, funding costs, and inventory positions of the prim...

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Bibliographic Details
Published in:Journal of financial economics 2021-09, Vol.141 (3), p.981-1006
Main Authors: Lewis, Kurt F., Longstaff, Francis A., Petrasek, Lubomir
Format: Article
Language:English
Subjects:
Analysis
Asset management
Assets
Assets (Accounting)
Bonds
Business schools
Corporate bonds
Federal Reserve banks
Guaranteed bonds
Intermediary constraints
Inventory
Prices
Safe assets
Securities markets
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Summary:We use a unique sample of corporate bonds guaranteed by the full faith and credit of the US to test recent theories about why asset prices may diverge from fundamental values. A key feature of our study is access to proprietary data on the haircuts, funding costs, and inventory positions of the primary dealers making markets in the individual bonds. The results provide strong support for the cross-sectional implications of the safe-asset, intermediary-constraints, and search-frictions literatures. Furthermore, the results indicate that network topology may also play an important role in explaining mispricing.
ISSN:0304-405X
1879-2774
DOI:10.1016/j.jfineco.2020.05.011