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The suspensions of redemptions during the COVID 19 crisis – a case for pre-emptive liquidity measures?

Author

Listed:
  • Grill, Michael
  • Molestina Vivar, Luis
  • Wedow, Michael

Abstract

Following the onset of the coronavirus (COVID‑19) crisis, a significant number of European investment funds suspended redemptions. We find that many of those funds had invested in illiquid assets, were leveraged or had lower cash holdings than funds that were not suspended. Furthermore, suspensions were more likely to be seen in jurisdictions where pre-emptive liquidity measures were not available. Our findings also suggest that suspensions have spillover effects on other funds and sectors, highlighting the importance of pre-emptive liquidity management measures. JEL Classification: G23, G28, G01

Suggested Citation

  • Grill, Michael & Molestina Vivar, Luis & Wedow, Michael, 2021. "The suspensions of redemptions during the COVID 19 crisis – a case for pre-emptive liquidity measures?," Macroprudential Bulletin, European Central Bank, vol. 12.
    • Handle: RePEc:ecb:ecbmbu:2021:0012:3
    Note: 1280809
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    File URL: https://www.ecb.europa.eu//pub/financial-stability/macroprudential-bulletin/html/ecb.mpbu202104_3~a7ddbf0d16.en.html
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    Citations

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    Cited by:

    1. Gourdel, Régis & Sydow, Matthias, 2023. "Non-banks contagion and the uneven mitigation of climate risk," International Review of Financial Analysis, Elsevier, vol. 89(C).
    2. Stijn Claessens & Ulf Lewrick, 2022. "Open-ended bond funds: Systemic risks and policy implications," Aussenwirtschaft, University of St. Gallen, School of Economics and Political Science, Swiss Institute for International Economics and Applied Economics Research, vol. 72(01), pages 45-62, December.
    3. Gourdel, Régis & Sydow, Matthias, 2022. "Non-banks contagion and the uneven mitigation of climate risk," Working Paper Series 2757, European Central Bank.
    4. Milan Szabo, 2022. "Meeting Investor Outflows in Czech Bond and Equity Funds: Horizontal or Vertical?," Working Papers 2022/6, Czech National Bank.
    5. Grill, Michael & Molestina Vivar, Luis & Wedow, Michael, 2022. "Mutual fund suspensions during the COVID-19 market turmoil - asset liquidity, liquidity management tools and spillover effects," Finance Research Letters, Elsevier, vol. 50(C).
    6. Thierry Roncalli, 2021. "Liquidity Stress Testing in Asset Management -- Part 3. Managing the Asset-Liability Liquidity Risk," Papers 2110.01302, arXiv.org.

    More about this item

    Keywords

    Liquidity risk; Open-ended investment funds; Suspension of redemptions;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G01 - Financial Economics - - General - - - Financial Crises

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