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Mutual fund suspensions during the COVID-19 market turmoil - asset liquidity, liquidity management tools and spillover effects

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

Abstract

We investigate the drivers and impact of suspending redemptions for European mutual funds. Using a novel data set of funds that suspended redemptions during the COVID19 market turmoil in March 2020, we find that illiquid funds invested in real estate are substantially more likely to suspend than other funds. Suspensions are also strongly correlated with funds’ cash holdings, leverage, age and the availability of ex-ante liquidity tools. We also find that suspensions result in lower inflows for the suspending funds once they re-open and for associated non-suspending funds belonging to the same asset management company, suggesting spillover effects from suspensions.

Suggested Citation

  • 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).
  • Handle: RePEc:eee:finlet:v:50:y:2022:i:c:s1544612322004469
    DOI: 10.1016/j.frl.2022.103249
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    Cited by:

    1. Molestina Vivar, Luis & Wedow, Michael & Weistroffer, Christian, 2023. "Burned by leverage? Flows and fragility in bond mutual funds," Journal of Empirical Finance, Elsevier, vol. 72(C), pages 354-380.
    2. Dunne, Peter & Emter, Lorenz & Fecht, Falko & Giuliana, Raffaele & Peia, Oana, 2023. "Financial fragility in open-ended mutual funds: the role of liquidity management tools," ESRB Working Paper Series 140, European Systemic Risk Board.

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