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 language | English |
|---|---|
| Publication status | Presented - 6 Jun 2024 |
| Event | 16th 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 2024 → 7 Jun 2024 https://www.fmg.ac.uk/events/16th-annual-paul-woolley-centre-conference-and-4th-annual-conference-non-bank-financial |
Conference
| Conference | 16th Annual Paul Woolley Centre Conference and 4th Annual Conference on Non-Bank Financial Sector and Financial Stability |
|---|---|
| Country/Territory | United Kingdom |
| City | London |
| Period | 6/06/24 → 7/06/24 |
| Internet address |
