Investor flows and fragility in corporate bond funds

Itay Goldstein, Hao Jiang and David T. Ng

Journal of Financial Economics, 2017, vol. 126, issue 3, 592-613

Abstract: This paper explores flow patterns in corporate bond mutual funds. We show that corporate bond funds exhibit a concave flow-to-performance relationship: their outflows are sensitive to bad performance more than their inflows are sensitive to good performance. Moreover, corporate bond funds tend to have greater sensitivity of outflows to bad performance when they have more illiquid assets and when the overall market illiquidity is high. These results point to the possibility of fragility in the fast-growing corporate bond market. The illiquidity of corporate bonds may generate a first-mover advantage among investors in corporate bond funds, amplifying their response to bad performance.

Keywords: Financial fragility; Payoff complementarities; Bond funds (search for similar items in EconPapers)
JEL-codes: G01 G20 G23 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (233)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:126:y:2017:i:3:p:592-613

DOI: 10.1016/j.jfineco.2016.11.007

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