Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets

Antonio Falato, Itay Goldstein and Ali Hortacsu

Journal of Monetary Economics, 2021, vol. 123, issue C, 35-52

Abstract: Using daily microdata, we document major outflows in corporate-bond funds during the COVID-19 crisis. Large outflows were sustained over weeks and most severe for funds with illiquid assets, vulnerable to fire sales, and exposed to sectors hurt by the crisis. By providing a liquidity backstop for their bond holdings, the Federal Reserve bond purchase program helped to reverse outflows especially for the most fragile funds. In turn, the program had spillover effects on primary market issuance and peer funds. The evidence points to a “bond-fund fragility channel” whereby the Fed liquidity backstop transmits to the real economy via funds.

Keywords: Crises; Fragility; Fixed income markets; Mutual funds; Transmission of unconventional monetary policy (search for similar items in EconPapers)
JEL-codes: E50 E60 G20 G30 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (85)

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Working Paper: Financial Fragility in the COVID-19 Crisis: The Case of Investment Funds in Corporate Bond Markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:123:y:2021:i:c:p:35-52

DOI: 10.1016/j.jmoneco.2021.07.001

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