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).
| Original language | English |
|---|---|
| Article number | 103931 |
| Journal | Journal of Financial Economics |
| Volume | 161 |
| Online published | 29 Aug 2024 |
| DOIs | |
| Publication status | Published - Nov 2024 |
Bibliographical note
Research Unit(s) information for this publication is provided by the author(s) concerned.UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 17 Partnerships for the Goals
Research Keywords
- Monetary policy
- Corporate bond mutual funds
- Fund redemption
- Financial fragility
- Market liquidity
Publisher's Copyright Statement
- This full text is made available under CC-BY 4.0. https://creativecommons.org/licenses/by/4.0/
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