Swing Pricing and Fragility in Open-end Mutual Funds

Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in Corporate Bond Markets

“…Again, for historical comparison, when we re-estimate equation (1) in the full sample, the estimated coefficients on a dummy for the peak month of the Taper Tantrum, June 2013, imply an effect of about 9 percentage points for 2-day large outflows and 15 percentage points large outflows for at least two share-classes within-fund, respectively, which are roughly half as large as the estimated peak effects in Panel B. 19…”

Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets

“…The variables used in this paper are extracted from four major data sources for the 2010M1-2020M8 period: daily mutual fund flows, net assets, and returns from the Morningstar Database; 18 quarterly mutual fund characteristics from the CRSP Mutual Fund Database; quarterly security-level holdings of fixed income securities by U.S.-domiciled mutual funds from Thompson Reuters/Lipper eMAXX database when available and the CRSP Mutual Fund Database otherwise; security-level data on corporate bond trading volume and liquidity from TRACE, and bond maturity and ratings from FISD and the three major credit rating agencies (Fitch, Moody's, and S&P).…”

Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in Corporate Bond Markets

“…As emphasized by a classical literature starting from Vishny (1992, 1997), in the presence of a downward-sloping demand for corporate bonds, fire-sales of a fund's portfolio securities -i.e., sales that are forced by redemptions -have a price-impact. 15 By depressing security prices, flow-related sales lead to spillovers because the valuation losses hurt the performance of peer funds that hold the same securities. In turn, spillovers may lead to redemptions at peer funds through the performanceflow relationship.…”

“…Intuitively, the measure ranks as more vulnerable funds for which peer outflows are more likely 15 Several factors have been identified in the literature as potentially leading to downward-sloping demand, including illiquidity due to transaction costs as well as, more broadly, slow-moving capital factors that make high-valuation bidders relatively scarce and lead to arbitrage persistence. A number of recent papers have put forward potential explanations for the existence of persistent mispricing in financial markets.…”