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Investor flows and fragility in corporate bond funds

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  • Goldstein, Itay
  • Jiang, Hao
  • Ng, David T.

Abstract

This paper explores flow patterns in corporate bond mutual funds. We show that corporate bond funds exhibit a concave flow-to-performance relationship: their outflows are sensitive to bad performance more than their inflows are sensitive to good performance. Moreover, corporate bond funds tend to have greater sensitivity of outflows to bad performance when they have more illiquid assets and when the overall market illiquidity is high. These results point to the possibility of fragility in the fast-growing corporate bond market. The illiquidity of corporate bonds may generate a first-mover advantage among investors in corporate bond funds, amplifying their response to bad performance.

Suggested Citation

  • Goldstein, Itay & Jiang, Hao & Ng, David T., 2017. "Investor flows and fragility in corporate bond funds," Journal of Financial Economics, Elsevier, vol. 126(3), pages 592-613.
  • Handle: RePEc:eee:jfinec:v:126:y:2017:i:3:p:592-613
    DOI: 10.1016/j.jfineco.2016.11.007
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Money Funds -- The Empire Strikes Back?
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2018-01-15 18:48:50

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    3. Koen van der Veer & Anouk Levels & Claudia Lambert & Luis Molestina Vivar & Christian Weistroffer & Raymond Chaudron & René de Sousa van Stralen, 2017. "Developing macroprudential policy for alternative investment funds," DNB Occasional Studies 1504, Netherlands Central Bank, Research Department.
    4. Aikman, David & Haldane, Andrew & Hinterschweiger, Marc & Kapadia, Sujit, 2018. "Rethinking financial stability," Bank of England working papers 712, Bank of England.
    5. Mike Anderson & René M. Stulz, 2017. "Is Post-Crisis Bond Liquidity Lower?," NBER Working Papers 23317, National Bureau of Economic Research, Inc.
    6. repec:kap:jfsres:v:53:y:2018:i:2:d:10.1007_s10693-018-0291-z is not listed on IDEAS

    More about this item

    Keywords

    Financial fragility; Payoff complementarities; Bond funds;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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