Is There Flow-Driven Price Impact in Corporate Bond Markets?

Choi, Jaewon; Hoseinzade, Saeid; Shin, Sean Seunghun; Tehranian, Hassan

doi:10.2139/ssrn.2731844

Cited by 5 publications

(11 citation statements)

References 15 publications

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“…First, bond funds exert a significant impact on the bond prices (or yields), especially when facing investors' redemptions. These results are consistent with the few existing papers for the US (Chernenko and Sunderam, 2016;Choi and Shin, 2016), though studies on the subject are rather scarce. Second, we find that the larger the funds' holdings in a given bond, the larger the price effect on this bond.…”

Section: Monthly Net Flows Into French Bond and Mixed Funds As % Of supporting

confidence: 92%

“…Chernenko and Sunderam (2016) argue that funds engage in substantial liquidity management to accommodate in/outflows, although funds' cash holdings are not sufficient to mitigate price impact on the assets. Choi and Shin (2016) reach a similar conclusion that price pressure on bonds is more pronounced for those bonds that are held by low-cash funds. Actually, low-cash funds (less than 5% of their assets) represent a large proportion of the U.S. corporate bond funds.…”

Section: The Asymmetric Effect Of Redemptionsmentioning

confidence: 55%

“…First, when facing investors' outflows, funds sell certain types of assets first. As suggested by Choi and Shin (2016)…”

Section: Hypothesis 4: Fund Redemptions Have An Impact On Liquidity Pmentioning

confidence: 83%

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Price Effect of Mutual Fund Flows on the Corporate Bond Market. The French Case

Coudert

Salakhova

2019

SSRN Journal

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We study how investors' withdrawals from mutual funds may affect the French corporate bond market. We use monthly data on flows to the French bond and mixed mutual funds as well as a database on their bond holdings at the bond-level from 2011 to 2017 provided by the Banque of France Statistics Department. Using a large sample of French corporate bonds held by funds, we run panel data regressions at the bond-level to explain their yields by macroeconomic variables, such as the sovereign 10-y rate, the short-term rate, the Vstoxx as well as bond-specific variables, such as the residual maturity, liquidity and the issuer's probability of default. We also account for the corporate securities purchasing programme (CSPP) implemented by the ECB since June 2016 by adding dummy variables on the eligible bonds. Then we add variables related to inflows/outflows to test for several hypotheses. First, our results show that flows to funds affect the yields of all corporate bonds across the board. Second, this effect is asymmetric since outflows have a greater impact on yields than inflows. Third, the greater the funds' market share in a specific bond the higher the impact on this bond is. These three results are robust to change in econometric specification. Further estimations suggest that withdrawals may raise liquidity premia and ownership by funds could amplify the response of bond yields to financial stress, although these two latter results are not significant in all econometric specifications.

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Section: Monthly Net Flows Into French Bond and Mixed Funds As % Of supporting

confidence: 92%

Section: The Asymmetric Effect Of Redemptionsmentioning

confidence: 55%

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Price Effect of Mutual Fund Flows on the Corporate Bond Market. The French Case

Coudert

Salakhova

2019

SSRN Journal

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“…The coefficient β is significantly positive, suggesting that fund managers hold more cash when the fund has higher liquidity risk, measured by flow volatility in the past 12 months 13 .…”

Section: 3512mentioning

confidence: 99%

Cross-trading and liquidity management: Evidence from municipal bond funds

Wang

Yang

2021

Pacific-Basin Finance Journal

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The high flow-performance sensitivity in open-end municipal bond funds motivates fund managers to actively manage funding liquidity risk and reduce the costs of flowdriven transactions. Funds with volatile past flows build up liquidity buffers by holding more cash and liquid municipal bonds in their portfolios. Funds rely on cash and liquid securities in flow management. Unconventional liquidity management tools, such as crosstrading between funds in the same family, are used by municipal bond funds in extreme situations. Fund families coordinate cross-trades between open-and low-value closed-end funds only when open-end funds are in distress. iv ACKNOWLEDGMENTS I thank my committee chair, Z. Jay Wang, for his encouragement and helpful suggestions and comments. I am thankful for useful suggestions and comments from my dissertation committee members: Diane Del Guercio, Youchang Wu and Jeremy Piger. I also thank participants in the workshop at the University of Oregon. I am grateful to John

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“…, 2009; Palazzo, 2009; Gao and Grinstein, 2014). For example, the redemption [1] feature of an open-end mutual fund is said forcing managers to hold cash to meet any unexpected cash withdrawal by an investor to avoid selling the assets (Chaderina and Scheuch, 2018; Choi and Shin, 2016; Morris et al. , 2017).…”

Section: Introductionmentioning

confidence: 99%

Cash holding and performance analysis of mutual funds: a case of an emerging financial market

Khan

Shah

Bangash

2021

IJOEM

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PurposeThis study is about the determinants of cash holding and impact of cash holding on mutual funds’ performance. In addition, the study analyzes the impact of performance-related determinants of cash holding on funds' performance.Design/methodology/approachPanel data of ten years of 190 open-end mutual funds are analyzed through fixed effect regression technique. The risk-adjusted funds' performance of cash based portfolios is computed through capital asset pricing model (CAPM) (1964), Fama and French (1993) and Carhart (1997) models.FindingsThe results indicate that small size funds, high charging front-end load funds, high turnover ratio funds, high 12-month fund returns run up, high dividend paying funds and high redemption level funds hold more cash for precautionary purpose to avoid costs of cash short-falls. Further, monthly average raw returns and risk-adjusted performance of funds with the lowest raw and residual cash holding are found higher than the funds with the highest cash holding. An increase in cash is found to dilute performance.Originality/valueThis is a pioneer study in a corporate environment with shallow capital market, reliance of businesses on bank credit, firms exposed to agency issues, wealth expropriations and existence of business groups with political linkages but with opportunities of investments due to expected favorable geo-socio-political situation. The study generates outcomes relevant for other similar economies.

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Is There Flow-Driven Price Impact in Corporate Bond Markets?

Cited by 5 publications

References 15 publications

Price Effect of Mutual Fund Flows on the Corporate Bond Market. The French Case

Price Effect of Mutual Fund Flows on the Corporate Bond Market. The French Case

Cross-trading and liquidity management: Evidence from municipal bond funds

Cash holding and performance analysis of mutual funds: a case of an emerging financial market

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