 Too big to ignore? Hedge fund flows and bond yieldsOlga Kolokolova, Ming-Tsung Lin and Ser-Huang Poon Journal of Banking & Finance, 2020, vol. 112, issue C Abstract: This paper investigates the information content of aggregate hedge fund flow and its predictive power with respect to bond yields. Using a sample of 9725 hedge funds from 1994 to 2012, we find that fund flow is negatively related to the changes in 10-year Treasury and Moody’s Baa bond yields one month ahead. This relation is still pronounced after controlling for other determinants of yield changes, including the amount of arbitrage capital available in the economy, suggesting a non-trivial effect of flow-induced hedge fund trading on bond yields. Flow impact on corporate bonds is further amplified during periods of decreasing market liquidity, consistent with a fire-sale hypothesis. Hedge fund flow also predicts convergence between constant maturity swap rate and constant maturity Treasury rate, as well as between the TIPS and Treasury bond yields, suggesting that hedge funds exploit arbitrage opportunities in these fixed-income markets. Keywords: Hedge funds; Flows; Bond yields (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:112:y:2020:i:c:s0378426617302960 DOI: 10.1016/j.jbankfin.2017.12.009 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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