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Do investors reach for yield? Evidence from corporate bond mutual fund flows

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  • Huang, Jing-Zhi
  • Li, Peipei
  • Wang, Ying
  • Wang, Yuan
  • Yao, Xiangkun
  • Zhang, Licheng

Abstract

This paper investigates the reaching-for-yield behavior of corporate bond mutual fund investors by analyzing how fund flows respond to changes in interest rates. We find that investment-grade (IG) bond funds experience increased inflows following lower interest rates, while high-yield (HY) bond funds show no significant response. Bond fund investors tend to seek higher yields during periods of lower interest rates by assuming greater interest rate risk through the purchase of longer-maturity IG funds, rather than by taking on additional credit risk. Our findings are robust to potential endogeneity concerns and alternative explanations—including investors’ flight-to-safety behavior, liquidity considerations, and fund managers’ skill—indicating that fund flows are primarily driven by investors’ reaching-for-yield behavior in response to expansionary monetary policy. Overall, this study advances the understanding of monetary policy transmission and its implications for financial stability in the corporate bond market.

Suggested Citation

  • Huang, Jing-Zhi & Li, Peipei & Wang, Ying & Wang, Yuan & Yao, Xiangkun & Zhang, Licheng, 2025. "Do investors reach for yield? Evidence from corporate bond mutual fund flows," Journal of Empirical Finance, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:empfin:v:83:y:2025:i:c:s0927539825000477
    DOI: 10.1016/j.jempfin.2025.101625
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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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

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