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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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    References listed on IDEAS

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    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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