Financial fragility in open-ended mutual funds: the role of liquidity management tools

Peter Dunne, Lorenz Emter, Falko Fecht, Raffaele Giuliana and Oana Peia

No 140, ESRB Working Paper Series from European Systemic Risk Board

Abstract: We study the role of liquidity management tools (LMTs) in mitigating financial fragility in investment funds during the COVID-19 market distress. We employ a unique dataset that reports the availability of different types of LMTs in a sample of Irish-domiciled corporate bond funds. We find that funds with access to price-based tools such as redemption fees or anti-dilution levies experienced lower net outflows in March 2020, as compared to funds with only quantity-based tools such as redemption gates, temporary suspensions or redemption in kind. This difference is stronger among funds with a high sensitivity of flows to past-performance and reflects both higher gross in-flows and lower gross outflows during this episode. Funds with price-based LMTs also rebalance their portfolios towards less liquid bonds, which results in lower price fragility among bonds held disproportionally by our sample of Irish-domiciled funds. JEL Classification: G2, G23

Keywords: COVID-19; investment funds; liquidity management tools; financial fragility (search for similar items in EconPapers)
Date: 2023-03
Note: 77663
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Financial fragility in open-ended mutual funds: The role of liquidity management tools (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:2023140

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