Events

Professor Amit Goyal
SFI Senior Chair
Professor of Finance
University of Lausanne

Short sellers in the corporate bond market are primarily dealers rather than speculative customers. On days when bond lending increases, dealer sales, the half spread of customer buy trades, and bond returns all rise, indicating that bond lending is driven by customer buying pressure. Using a novel empirical framework that decomposes the variance of securities lending, we find that dealer market-making activities account for roughly two-thirds of lending variation. Customer speculation plays a larger role in a small segment of special bonds, but its share never exceeds 50%. Our findings caution against extending insights from the equity short-selling literature to the corporate bond market.