Rainy Day Liquidity

Document Type

Article

Publication Date

8-5-2026

Department

College of Business

Abstract

We investigate the role of insurers in providing liquidity in the corporate bond market, especially during “rainy days” when the aggregate dealer inventory is positive for a relatively large fraction of the outstanding bonds. We find that, on average, life insurers have positive liquidity supply in the years following the 2007–2009 financial crisis, primarily driven by their buy-side transactions. Insurers’ corporate bond purchases improve the liquidity of transacted bonds and comparable bonds on rainy days. Using unusual weather-related losses realized in the affiliated property and casualty division as an instrumental variable, we show that corporate bonds purchased more by insurers have higher liquidity in subsequent periods.

Publication Title

Management Science

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