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  • July 2012
  • Article
  • Review of Financial Studies

The Real Consequences of Market Segmentation

By: Sergey Chernenko and Adi Sunderam
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Abstract

We study the real effects of market segmentation due to credit ratings using a matched sample of firms just above and just below the investment-grade cutoff. These firms have similar observables, including average investment rates. However, flows into high-yield mutual funds have an economically significant effect on the issuance and investment of the speculative-grade firms relative to their matches, especially for firms likely to be financially constrained. The effect is associated with the discrete change in label from investment-grade to speculative-grade, not with changes in continuous measures of credit quality. We do not find similar effects at other rating boundaries.

Keywords

Segmentation; Credit; Investment; Investment Funds; Quality; Markets; Measurement and Metrics; Business Ventures

Citation

Chernenko, Sergey, and Adi Sunderam. "The Real Consequences of Market Segmentation." Review of Financial Studies 25, no. 7 (July 2012). (Winner of the RFS Young Researcher Prize 2012.)
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About The Author

Adi Sunderam

Finance
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More from the Authors
  • Shared Models in Networks, Organizations, and Groups By: Joshua Schwartzstein and Adi Sunderam
  • Perceptions about Monetary Policy By: Michael D. Bauer, Carolin Pflueger and Adi Sunderam
  • The Impact of Minority Representation at Mortgage Lenders By: W. Scott Frame, Ruidi Huang, Erik J. Mayer and Adi Sunderam
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