Institutional Corporate Bond Pricing

Lorenzo Bretscher; Lukas Schmid; Ishita Sen; Varun Sharma

doi:10.1093/rfs/hhaf067

Institutional Corporate Bond Pricing

Lorenzo Bretscher¹; Lukas Schmid²; Ishita Sen³; Varun Sharma⁴

¹ University of Lausanne, Swiss Finance Institute, Switzerland, and CEPR · ² University of Southern California, United States, and CEPR · ³ Harvard University · ⁴ Indiana University

Review of Financial Studies 2026

Abstract We propose an equilibrium corporate bond pricing model that accommodates the heterogeneity in institutional investors’ preferences and mandates in an empirically tractable way. Our model, estimated on rich holdings data, quantifies investors’ preferences and demand elasticities, with inelastic insurers focusing on the investment-grade segment, and elastic mutual funds substituting across ratings groups. The model offers a novel quantitative perspective of the effect of recent trends in institutional ownership on equilibrium credit spreads and the funding costs of corporations. Overall, our model emphasizes the composition of institutional demand as an important state variable for corporate bond pricing.

DOI: 10.1093/rfs/hhaf067
Volume: 39 (3)
Pages: 605-660
Language: en
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