Monetary Policy and Fragility in Corporate Bond Funds

John Kuong, James O'Donovan, Jinyuan Zhang

Research output: Conference PapersRGC 33 - Other conference paper

Abstract

We document aggregate outflows from corporate bond funds days before and after the announcement of increases in the Federal Funds Target rate (FFTar). To rationalize this phenomenon, we build a model in which funds’ net-asset-values (NAVs) are stale and investors strategically redeem to profit from the mispricing when they learn about the increases of FFTar. Consistent with the model’s predictions, we find that stale NAVs and loose monetary policy environments weaken (strengthen) outflows sensitivity to increases in FFTar during illiquid (liquid) market conditions. Our results highlight when and how monetary policy could systematically exacerbate the fragility of corporate bond funds.
Original languageEnglish
Publication statusPresented - 6 Jun 2024
Event16th Annual Paul Woolley Centre Conference and 4th Annual Conference on Non-Bank Financial Sector and Financial Stability - London School of Economics and Political Science, London, United Kingdom
Duration: 6 Jun 20247 Jun 2024
https://www.fmg.ac.uk/events/16th-annual-paul-woolley-centre-conference-and-4th-annual-conference-non-bank-financial

Conference

Conference16th Annual Paul Woolley Centre Conference and 4th Annual Conference on Non-Bank Financial Sector and Financial Stability
Country/TerritoryUnited Kingdom
CityLondon
Period6/06/247/06/24
Internet address

Bibliographical note

Information for this record is supplemented by the author(s) concerned.

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