Title
Bond Price Fragility and the Structure of the Mutual Fund Industry
Publication Date
11-2-2022
Abstract
We show that mutual funds with a large share of a bond issue sell their holdings of that issue to a lower extent when they experience redemptions, arguably because they attempt to avoid a drop in the bond price and the consequent negative spillovers on the unsold part of their position. Hence, ownership concentration limits bonds’ exposures to flow-induced fire sales. We exploit exogenous variation in the negative spillovers of forced sales arising from the Fed’s SMCCF to confirm the economic mechanism. We also explore our findings’ implications for fund performance and the stability of the bond mutual fund industry.
Document Type
Article
Keywords
Bonds, Mutual Funds, Fire Sales, Fed, Corporate Quantitative Easing, COVID-19 Pandemic, Secondary Market Corporate Credit Facility (SMCCF)
Disciplines
Finance
DOI
10.2139/ssrn.3963161
Source
SMU Cox: Finance (Topic)
Language
English