Arbeitspapier
Burned by leverage? Flows and fragility in bond mutual funds
Does leverage drive investor ows in bond mutual funds? Leverage can increase fund returns in good times, but it can also magnify investors' losses and their response to bad performance. We study bond fund ows to provide new evidence for the link between mutual fund leverage and financial fragility. We find that out ows are greater in leveraged funds during stressed periods and after bad performance, compared with unleveraged funds. We provide supporting evidence that leverage exacerbates the negative externality in investors' redemption decisions. In this regard, we find that fund managers in leveraged funds react more procyclically to net out ows compared with fund managers in unleveraged funds. Such procyclical security sales in leveraged funds may increase investors' first-mover advantages and their response to bad performance. These findings suggest that leverage amplifies fragility in the bond mutual fund sector.
- ISBN
-
978-92-899-4056-6
- Language
-
Englisch
- Bibliographic citation
-
Series: ECB Working Paper ; No. 2413
- Classification
-
Wirtschaft
Financial Crises
Financial Institutions and Services: General
Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- Subject
-
bond funds
fund leverage
financial fragility
- Event
-
Geistige Schöpfung
- (who)
-
Vivar, Luis Molestina
Wedow, Michael
Weistroffer, Christian P.
- Event
-
Veröffentlichung
- (who)
-
European Central Bank (ECB)
- (where)
-
Frankfurt a. M.
- (when)
-
2020
- DOI
-
doi:10.2866/357677
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Vivar, Luis Molestina
- Wedow, Michael
- Weistroffer, Christian P.
- European Central Bank (ECB)
Time of origin
- 2020
Other Objects (12)
Regulation, leverage, and derivative use by mutual funds
Information costs and mutual fund flows
Risk-on/risk-off, capital flows, leverage, and safe assets
Consumer interest rates and retail mutual fund flows
Seasonal asset allocation: Evidence from mutual fund flows
Financial fragility in open-ended mutual funds: The role of liquidity management tools
Financial fragility in open-ended mutual funds : the role of liquidity management tools
Financial crisis and corporate social responsible mutual fund flows
Mutual fund shareholder letters: Flows, performance, and managerial behavior
Mutual fund flows, expected returns, and the real economy
Mutual fund shareholder letters: flows, performance, and managerial behavior
Burned Tree, Carson Pass
Regulation, leverage, and derivative use by mutual funds
Information costs and mutual fund flows
Risk-on/risk-off, capital flows, leverage, and safe assets
Consumer interest rates and retail mutual fund flows
Seasonal asset allocation: Evidence from mutual fund flows
Financial fragility in open-ended mutual funds: The role of liquidity management tools
Financial fragility in open-ended mutual funds : the role of liquidity management tools
Financial crisis and corporate social responsible mutual fund flows
Mutual fund shareholder letters: Flows, performance, and managerial behavior
Mutual fund flows, expected returns, and the real economy
Mutual fund shareholder letters: flows, performance, and managerial behavior
Burned Tree, Carson Pass
Regulation, leverage, and derivative use by mutual funds
Information costs and mutual fund flows
Risk-on/risk-off, capital flows, leverage, and safe assets
Consumer interest rates and retail mutual fund flows
Seasonal asset allocation: Evidence from mutual fund flows
Financial fragility in open-ended mutual funds: The role of liquidity management tools
Financial fragility in open-ended mutual funds : the role of liquidity management tools
Financial crisis and corporate social responsible mutual fund flows
Mutual fund shareholder letters: Flows, performance, and managerial behavior
Mutual fund flows, expected returns, and the real economy
Mutual fund shareholder letters: flows, performance, and managerial behavior