This paper examines the link between ownership concentration and corporate bond volatility. We show that more concentrated mutual fund ownership is associated with higher volatility of corporate bonds. This relation is stronger among more illiquid bonds, during periods of heightened bond market illiquidity, and among bonds held by corporate bond funds that invest in more illiquid bonds and experience higher or more correlated liquidity shocks. Using a sample of mutual fund mergers, we further show that increases in bond volatility are unlikely to be driven entirely by the endogenous ownership structure of corporate bonds. Our findings suggest that the concentrated ownership by corporate bond mutual funds provides another channel, apart from illiquidity, to help explain the excess volatility in corporate bonds.

In contrast to the constant exercise boundary assumed by Broadie and Detemple (1996) [Broadie, M., Detemple, J., 1996. American option valuation: New bounds, approximations, and comparison of existing methods. Review of Financial Studies 9, 1211–1250], we use an exponential function to approximate the early exercise boundary. Then, we obtain lower bounds for American option prices and the optimal exercise boundary which improve the bounds of Broadie and Detemple (1996). With the tight lower bound for the optimal exercise boundary, we further derive a tight upper bound for the American option price using the early exercise premium integral of Kim (1990) [Kim, I.J., 1990. The analytic valuation of American options. Review of Financial Studies 3, 547–572]. The numerical results show that our lower and upper bounds are very tight and can improve the pricing errors of the lower bound and upper bound of Broadie and Detemple (1996) by 83.0% and 87.5%, respectively. The tightness of our upper bounds is comparable to some best accurate/efficient methods in the literature for pricing American options. Moreover, the results also indicate that the hedge ratios (deltas and gammas) of our bounds are close to the accurate values of American options.