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Modeling Distress in US High Yield Mutual Funds Before and During the Covid-19 Pandemic

Author

Listed:
  • Szymczyk Łukasz

    (Department of Investment and Financial Markets, Institute of Finance, Poznan University of Economics and Business)

  • Van Horne Richard

    (Department of Investment and Financial Markets, Institute of Finance, Poznan University of Economics and Business)

  • Perez Katarzyna

    (Department of Investment and Financial Markets, Institute of Finance, Poznan University of Economics and Business)

Abstract

Research background: In March 2020, when the US financial markets were in the grip of the COVID-19 crisis, the Fed instituted various policies and programs to alleviate stress in financial markets. One such program involved the Fed purchase of securities and ETFs in certain market segments, including high yield bonds. This buying action inspired investors to join the Fed (or front-run the Fed) in the high yield bond market, resulting in the tightening of spreads in that market to historically tight levels.

Suggested Citation

  • Szymczyk Łukasz & Van Horne Richard & Perez Katarzyna, 2022. "Modeling Distress in US High Yield Mutual Funds Before and During the Covid-19 Pandemic," Folia Oeconomica Stetinensia, Sciendo, vol. 22(1), pages 263-286, June.
    • Handle: RePEc:vrs:foeste:v:22:y:2022:i:1:p:263-286:n:9
    DOI: 10.2478/foli-2022-0013
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    More about this item

    Keywords

    high yield mutual funds; liquidity risk; serial correlation model; lagged effect model; portfolio liquidity; COVID-19 pandemic;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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