Monetary policy and fragility in corporate bond mutual funds
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
Author(s)
Related Research Unit(s)
Detail(s)
| Original language | English |
|---|---|
| Article number | 103931 |
| Journal / Publication | Journal of Financial Economics |
| Volume | 161 |
| Online published | 29 Aug 2024 |
| Publication status | Published - Nov 2024 |
Link(s)
| DOI | DOI |
|---|---|
| Attachment(s) | Documents
Publisher's Copyright Statement
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| Link to Scopus | https://www.scopus.com/record/display.uri?eid=2-s2.0-85202653741&origin=recordpage |
| Permanent Link | https://scholars.cityu.edu.hk/en/publications/publication(e60255f6-a2ec-4f71-8e80-4a51427cd758).html |
Abstract
We document aggregate outflows from corporate bond mutual 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. © 2024 The Author(s).
Research Area(s)
- Monetary policy, Corporate bond mutual funds, Fund redemption, Financial fragility, Market liquidity
Bibliographic Note
Research Unit(s) information for this publication is provided by the author(s) concerned.
Citation Format(s)
Monetary policy and fragility in corporate bond mutual funds. / Kuong, John Chi-Fong; O'Donovan, James; Zhang, Jinyuan.
In: Journal of Financial Economics, Vol. 161, 103931, 11.2024.
In: Journal of Financial Economics, Vol. 161, 103931, 11.2024.
Research output: Journal Publications and Reviews › RGC 21 - Publication in refereed journal › peer-review
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