Bond Fund Fragility: Flow Reactions to Extremely Negative Return Shocks

Raphaëlle Bellando, Laura-Dona Capota () and Sébastien Galanti
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Laura-Dona Capota: LEO - Laboratoire d'Économie d'Orleans - UO - Université d'Orléans - UT - Université de Tours

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Abstract: We study the relationship between French bond mutual fund returns and their flows to assess whether mutual funds can generate financial instability. We show that mutual funds that present very negative short-term returns experience greater outflows than other funds (this effect appears at the bottom negative return quintile). Furthermore, regardless of the mutual funds' returns, investors seem to redeem more during periods of financial stress. Additional results show that for institutional investors, the nonlinear effect appears more frequently, starting from the second quintile of negative returns. This confirms the fragility stemming from negative shocks to bond mutual funds.

Keywords: Bond mutual funds; flows; flows-performance relationship (search for similar items in EconPapers)
Date: 2021
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Published in Finance, 2021, 42 (2), pp.81-114. ⟨10.3917/fina.422.0081⟩

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Journal Article: Bond Fund Fragility: Flow Reactions to Extremely Negative Return Shocks (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03261778

DOI: 10.3917/fina.422.0081

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