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Investor Redemptions and Fund Manager Sales of Emerging Market Bonds: How Are They Related?
[Borrow cheap, buy high? The determinants of leverage and pricing in buyouts]

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  • Jimmy Shek
  • Ilhyock Shim
  • Hyun Song Shin

Abstract

Asset portfolios of open-end mutual funds reflect both the fund flows from ultimate investors as well as discretionary trading by the fund managers. We propose a method for decomposing the change in mutual fund asset holdings into the parts due to investor flows, fund manager discretionary sales, and valuation effects. We find that discretionary sales tend to reinforce the sales due to investor redemptions. We also find that 100 dollars’ worth of bond sales is associated with around 4 dollars’ worth of valuation losses. Finally, we show that a one percentage point increase in emerging market economy (EME) bond yields is associated with a 9−10% decline in the dollar value of EME bond fund holdings.

Suggested Citation

  • Jimmy Shek & Ilhyock Shim & Hyun Song Shin, 2018. "Investor Redemptions and Fund Manager Sales of Emerging Market Bonds: How Are They Related? [Borrow cheap, buy high? The determinants of leverage and pricing in buyouts]," Review of Finance, European Finance Association, vol. 22(1), pages 207-241.
    • Handle: RePEc:oup:revfin:v:22:y:2018:i:1:p:207-241.
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