Bond Price Fragility and the Structure of the Mutual Fund Industry

Mariassunta Giannetti and Chotibhak Jotikasthira

The Review of Financial Studies, 2024, vol. 37, issue 7, 2063-2109

Abstract: We conjecture that mutual funds with large shares of outstanding bond issues are more inclined to internalize the negative price spillovers of fire sales and thus sell their holdings in those issues, to a lower extent, when they experience redemptions. We provide evidence consistent with this conjecture and further show that ownership concentration limits bonds’ exposures to flow-induced fire sales. We exploit variation in negative spillovers arising from the Fed’s SMCCF to confirm the economic mechanism and explore our findings’ implications for fund performance and fire-sale spillovers to other funds.

Keywords: G12; G23; E52 (search for similar items in EconPapers)
Date: 2024
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Working Paper: Bond Price Fragility and the Structure of the Mutual Fund Industry (2022)
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