Do mutual fund flows affect the French corporate bond market?

Virginie Coudert and Dilyara Salakhova

Economic Modelling, 2020, vol. 87, issue C, 496-510

Abstract: We study whether investors’ withdrawals from mutual funds affect corporate bond prices. As mutual funds have become major players in the financial markets, they are likely to exert downward pressures on asset prices when facing investors’ redemptions, particularly in the less liquid markets such as corporate bonds. We use a novel dataset on the French bond funds and show that both flows in and out of mutual funds lead to a significant effect on the corporate bond yields. This effect is asymmetric as redemptions provoke a change in yields of greater magnitude than inflows. Moreover, all corporate bonds are not equally affected by investors’ withdrawals from funds: The more a bond is detained by funds, the higher the impact of redemptions on its yield. These three results are robust to various changes in econometric specifications.

Keywords: Investment funds; Mutual funds; Corporate bonds; Fund flows; Financial stability (search for similar items in EconPapers)
JEL-codes: G12 G23 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:87:y:2020:i:c:p:496-510

DOI: 10.1016/j.econmod.2019.12.013

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