Abstract: We identify a novel exogenous demand shock caused by passive funds in corporate bond markets. Passive fund demand for corporate bonds displays discontinuity around the maturity cutoffs separating long-term, intermediate-term, and short-term bonds. Using a novel identification strategy, we show  that these non-fundamental passive demand shifts i) lead to predictable upward price pressure, and ii)  spill over to primary markets, causing lower issuing yield spreads, and firms engaging in debt market timing by substituting bank debt with bond financing. We show how SEC regulations and provisions affect the execution  of passive strategies and their transmission  to the real economy.

Abstract: In contrast to prior research that focuses on the role of borrower fundamentals in explaining loan renegotiations, we examine non-fundamental renegotiations of loans traded on the secondary loan market. We exploit the semi-annual rebalancing of the Morningstar LSTA US Leveraged Loan 100 Index as an exogenous shock to the trading conditions in this market, which are critical to non-bank institutional lenders that largely rely on the secondary market for their liquidity needs. In line with improved loan liquidity and greater institutional demand arising from the index inclusions, we find that index-included loans achieve lower bid-ask spreads, higher prices, and greater mutual fund holdings. We further find that index-included loans experience significantly higher likelihood of interest rate-reducing renegotiations than index-excluded loans, consistent with non-bank lenders sharing with borrowers non-fundamental surplus driven by the index inclusion. We rule out explanations related to borrower fundamental by showing that non-traded loans included in the same package as index-included loans do not experience interest rate reducing renegotiations and by conducting placebo analyses that employ an artificial index inclusion threshold and the time period preceding the index origination. Overall, our findings provide novel evidence that non-fundamental forces, such as a loan's inclusion in a major index, can trigger loan renegotiation.

Abstract: Leveraging the around-the-clock high-frequency S&P 500 index futures data, we document a significant and robust market-wide spillover from individual large firms' earnings announcements. Such spillover highlights the role of firms' earnings news as a pivotal source of aggregate market information, on par with macroeconomic releases. We further show that the magnitude of earnings news spillover is a persistent firm characteristic associated with the firm's size and industry. To examine the systematic risk explanation for the earnings announcement premium, we extend the model of Savor and Wilson (2016) to allow firms' news to covey heterogeneous aggregate cash flow news. Consistent with the model's prediction, we find that firms with larger expected earnings spillovers earn higher abnormal returns during the announcement weeks. Therefore, our findings provide direct evidence supporting the systematic risk explanation for the earnings announcement premium. 

Abstract: We examine 320 different forecasting models for international monthly stock return volatilities, using high frequency realized variances and the implied option variance as the predictor variables.  We evaluate linear and non-linear models, and logarithmic transformed and weighted least squares estimation approaches. A logarithmically transformed Corsi (2009) model combined with the option implied variance (``lm4_log") is robustly, across countries and time, among the best forecasting models. It also survives tests using panel models and international variables. When alternative models (such as models including negative returns) have better performance, the forecasts they generate are extremely highly correlated with those of the ``lm4_log" model.