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Meeting investor outflows in Czech bond and equity funds: horizontal or vertical?

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  • Milan Szabo

    (Prague University of Economics and Business
    Czech National Bank)

Abstract

This paper explores liquidity management practices in Czech open-ended bond and equity funds. I reconstruct cash flows stemming from investors and securities, and cash flows related to purchases and sales in portfolios and margin calls to study liquidity transformation and liquidity management in investment funds. I study how portfolio illiquidity and current market conditions influence the joint behavior between investor redemptions and funds’ liquidity management. I point to a strong propensity to reduce the liquid buffers rather than sales of securities to meet redemptions in bond funds. The propensity increases with portfolio illiquidity. I show equity funds historically tended to dash for cash in response to investor redemptions during a severe market turmoil.

Suggested Citation

  • Milan Szabo, 2022. "Meeting investor outflows in Czech bond and equity funds: horizontal or vertical?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(4), pages 1123-1151, November.
    • Handle: RePEc:kap:empiri:v:49:y:2022:i:4:d:10.1007_s10663-022-09553-w
    DOI: 10.1007/s10663-022-09553-w
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    Cited by:

    1. Milan Szabo, 2023. "Cyclical Investment Behavior of Investment Funds: Its Heterogeneity and Drivers," Working Papers 2023/5, Czech National Bank.
    2. Hodula, Martin & Szabo, Milan & Bajzík, Josef, 2024. "Retail fund flows and performance: Insights from supervisory data," Emerging Markets Review, Elsevier, vol. 59(C).

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    More about this item

    Keywords

    Investment fund; Liquidity management; Liquidity transformation;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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