Flight to Quality, Flight to Liquidity, and the Pricing of Risk

Vayanos, Dimitri

doi:10.3386/w10327

Cited by 408 publications

(297 citation statements)

References 48 publications

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“…On the other hand, poor short-term performance (Sharp index), mid-term performance (buy-hold returns), and long-term performance (Jensen  ) are determinants on liquidations. This conclusion is similar with those proposed by Lunde et al (1999), Horst et al (2001), andVayanos (2004). Fund flows and fund size are significant in predicting the likelihood of the within-family merge and liquidation, but it is not a determinant and effect for a cross-family merge fund.…”

Section: Multinomial Logit Modelsupporting

confidence: 78%

“…Funds with high returns were less likely to be terminated (Cameron and Hall, 2003). Liquidation can occur after poor performance and or for random reasons (Vayanos, 2004). When a fund family member is performing poorly, it may also likely to be sold to other fund families to reduce the relevant costs spent on research projects and marketing.…”

Section: Fund Performancementioning

confidence: 99%

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What Operational Characteristics of Mutual Funds Affect Exit Decisions and When? Evidence from Taiwan

Wang¹,

Huang²

2013

IJEF

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We investigated fund operating characteristics that cause fund companies to perform fund exit decisions and at what point of funds' lifecycles apply to fund liquidation or mergers. We also examined whether extra variable causes an important determinant effect and how fund operating characteristics before and after fund liquidations or mergers change. The empirical results show that: (1) the factors that affect within-family mergers are fund performance and flow from both cross-section and time-series views. The total net assets affect within-family mergers just in a cross-section analysis, not a lifecycle characteristic in a time-series analysis. Moreover, we found that performance volatility also affects exit decisions. The expense ratio and fund age are not the determinants for three type fund exits in Taiwanese onshore funds. (2) For the liquidation, total net assets, flow, performance volatility, and mid-term buy-hold returns have a significantly negative relationship with the fund liquidations from both the cross-section and time-series views. (3) In general, cross-family fund mergers are potentially conducted for strategic considerations rather than based on specific factors. (4) The performance volatility level before and following mergers was substantial and significant for within-family fund mergers; the expense ratio level before mergers was significant greater than following mergers for cross-family fund mergers.

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Section: Multinomial Logit Modelsupporting

confidence: 78%

Section: Fund Performancementioning

confidence: 99%

What Operational Characteristics of Mutual Funds Affect Exit Decisions and When? Evidence from Taiwan

Wang¹,

Huang²

2013

IJEF

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“…This can help explain why the return premium on illiquid stocks, estimated in empirical studies, is so large relative to expected per-period transaction costs. Vayanos (2004) considers a model in which investors' risk of needing to liquidate is time varying and shows that the liquidity premium -that is, the return compensation for illiquidity -is also time varying. Indeed, when investors have a high likelihood of needing to sell, the liquidity premium is high.…”

Section: Uncertain Trading Horizons and Liquidity Riskmentioning

confidence: 99%

Liquidity and Asset Prices

2005

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We review the theories on how liquidity affects the required returns of capital assets and the empirical studies that test these theories. The theory predicts that both the level of liquidity and liquidity risk are priced, and empirical studies find the effects of liquidity on asset prices to be statistically significant and economically important, controlling for traditional risk measures and asset characteristics. Liquidity-based asset pricing empirically helps explain (1) the cross-section of stock returns, (2) how a reduction in stock liquidity result in a reduction in stock prices and an increase in expected stock returns, (3) the yield differential between on-and off-the-run Treasuries, (4) the yield spreads on corporate bonds, (5) the returns on hedge funds, (6) the valuation of closed-end funds, and (7) the low price of certain hard-to-trade securities relative to more liquid counterparts with identical cash flows, such as restricted stocks or illiquid derivatives. Liquidity can thus play a role in resolving a number of asset pricing puzzles such as the small-firm effect, the equity premium puzzle, and the risk-free rate puzzle.

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“…Vayanos (2004) argues that investors attach a higher value to liquidity when markets are volatile. Ericsson and Renault (2006) motivate and document a positive correlation between credit risk and liquidity premiums for corporate bonds.…”

mentioning

confidence: 99%

Investor sentiment, flight-to-quality, and corporate bond comovement

Bethke

Gehde-Trapp

Kempf

2017

Journal of Banking & Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may AbstractWe examine the dynamics of bond correlation using a broad sample of US corporate bonds, and document that bond correlation varies heavily over time. We attribute this variation in bond correlation to variation in risk factor correlation reflecting time-varying flight-to-quality behavior of investors. We show that risk factor correlation increases when investor sentiment decreases, i.e., corporate bond investors exhibit stronger flight-to-quality when their sentiment is low. Thus, low investor sentiment leads to flightto-quality behavior and, ultimately, high bond correlation.JEL classification: G11; G12

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Flight to Quality, Flight to Liquidity, and the Pricing of Risk

Cited by 408 publications

References 48 publications

What Operational Characteristics of Mutual Funds Affect Exit Decisions and When? Evidence from Taiwan

What Operational Characteristics of Mutual Funds Affect Exit Decisions and When? Evidence from Taiwan

Liquidity and Asset Prices

Investor sentiment, flight-to-quality, and corporate bond comovement

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