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Please note that all times are shown in the time zone of the conference. The current conference time is: 28th May 2024, 08:56:13pm EDT
Track M3-5: Risk and Information in Institutional Investing
Time:
Monday, 20/May/2024:
1:45pm - 2:30pm
Session Chair: Christian Opp, University of Rochester Discussant: Edith Hotchkiss, Boston College
Location:Room 1216
Presentations
Passive investors in primary bond markets
Michele Dathan1, Caitlin Dannhauser2
1Federal Reserve Board of Governors; 2Villanova University
Passive investors participate in the corporate bond primary market, despite the bonds not yet being included in their benchmark index. Passive funds have higher holdings in bonds with lower underpricing, which is driven by allocations rather than secondary market purchases or ETF creation baskets. Higher passive holdings are related to deals with less demand (downsized, lower spread compression, and cold offerings) and bonds of lower quality (more likely to be downgraded). The underperformance continues over one month and one year. The main findings are driven by overallocations by underwriters to passive families and by fund families to their passive funds. Our results suggest passive funds serve as a backstop for deals, benefiting underwriters, issuers, and active funds.