Corporate Bond Markets: Investor Preferences and Intermediary Frictions



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This dissertation contains three empirical studies that examine the effects of buy-side preferences and frictions on the corporate bond market. The first study examines the effects of investors with pro-environmental preferences in the green bond market. Because green bonds benefit from a larger and diversified bondholder base, they are more liquid and more resilient during liquidity shocks compared to conventional counterparts. The second study analyzes the effect of hedging costs that convertible bond arbitrage hedge funds must bear when executing their investment strategy. We show that convertible bond prices are affected by firm-specific short-selling costs and regulation such as the 2008 short-sale ban. In the third study, we show that convertible issuing firms on average shorten their maturities by 5 years to substitute for the features provided by call provisions, which convertible arbitrageurs dislike. Altogether, these studies demonstrates that liquidity, pricing, and security design reflects the preferences of both issuers and buyers.