Do Mutual Funds and ETFs Affect the Commonality in Liquidity of Corporate Bonds?

Efe Çötelioğlu
Additional contact information
Efe Çötelioğlu: Swiss Finance Institute; USI Lugano

No 20-81, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: The paper studies the effect of demand-side sources on the commonality in liquidity of corporate bonds as the growing mutual fund and ETF ownership in the corporate bond market may give rise to correlated trading across bonds. I document that there is a positive and significant relationship between ETF ownership and liquidity commonality of investment-grade corporate bonds. In contrast, and unlike for equities, I find that mutual fund ownership does not increase commonality in liquidity of corporate bonds. I show that three different channels explain the differential impact of ETFs and mutual funds on liquidity commonality: flow-driven trading, different investor clienteles, and ETF arbitrage mechanism.

Keywords: Corporate Bonds; Liquidity; Commonality; Arbitrage; Exchange-Traded Funds (ETFs); Mutual Funds (search for similar items in EconPapers)
JEL-codes: G12 G14 G20 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2020-09
New Economics Papers: this item is included in nep-fmk and nep-mst
References: Add references at CitEc
Citations:

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3495716 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2081

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().