The Behavior of Investor Flows in Corporate Bond Mutual Funds

Chen, Yong; Qin, Nan

doi:10.1287/mnsc.2015.2372

Cited by 76 publications

(30 citation statements)

References 86 publications

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“…Aided with greater availability of data, recent studies have explored a number of aspects of bond investor behavior. For examples, Chen and Qin (2015) and Goldstein, Jiang, and Ng (2015) explore the flow-to-performance patterns of corporate bond mutual funds, Chen, Ferson, and Peters (2010b) evaluate the timing ability of bond funds, Moneta (2015) studies the relationship between bond fund performance and their portfolio holdings, Becker and Ivashina (2015) document a "reaching-for-yield" behavior of insurance companies in their investment on corporate bonds, and Manconi, Massa, and Yasuda (2012), Ellul, Jotikasthira, and Lundblad (2011) and Ambrose, Cai, and Helwege (2012) study the fire-sale behavior of bond mutual fund and insurance companies, respectively. We complement the literature by providing a comprehensive analysis on the correlated trading behavior of three major institutional investors of corporate bonds-mutual funds, insurance companies, and pension funds.…”

Section: Related Workmentioning

confidence: 99%

Institutional Herding and Its Price Impact: Evidence from the Corporate Bond Market

Cai

Han

et al. 2016

FEDS

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Among growing concerns about potential financial stability risks posed by the asset management industry, herding has been considered as an important risk amplification channel. In this paper, we examine the extent to which institutional investors herd in their trading of U.S. corporate bonds and quantify the price impact of such herding behavior. We find that, relative to what is documented for the equity market, the level of institutional herding is much higher in the corporate bond market, particularly among speculative-grade bonds. In addition, mutual funds have become increasingly likely to herd when they sell, a trend not observed among insurance companies and pension funds. We also show that bond investors herd not only within a quarter, but also over adjacent quarters. Such persistence in trading is largely driven by funds imitating the trading behavior of other funds in the previous quarter. Finally, we find that there is an asymmetry in the price impact of herding. While buy herding is associated with a permanent price impact that is consistent with price discovery, sell herding results in transitory yet significant price distortions. The price destabilizing effect of sell herding is particularly strong for high-yield bonds, small bonds, and illiquid bonds and during the recent global financial crisis.

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Section: Related Workmentioning

confidence: 99%

Institutional Herding and Its Price Impact: Evidence from the Corporate Bond Market

Cai

Han

et al. 2016

FEDS

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“…One applies to fund flow, which we compute as the percentage change in a fund's assets not related to fund performance. As fund flow will be one of our control variables, we remove observations with extreme fund flows, i.e., greater than 50% or smaller than -50% in a month, which could be due to misreported fund mergers and splits (e.g., Chen and Qin (2017)). The other filter, intended to avoid incubation bias, excludes observations before a fund's TNA reaches five million dollars and its age reaches 12 months (e.g., Evans (2010)).…”

Section: Corporate Bond Mutual Fund Samplementioning

confidence: 99%

On the Valuation Skills of Corporate Bond Mutual Funds

Cici

Zhang

2021

SSRN Journal

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We introduce a new measure to assess the valuation skills of investment-grade corporate bond funds. Our measure recognizes funds that ex-ante hold a higher fraction of undervalued bonds as having better valuation skills. The measure predicts future fund performance, is stable over time, and is unrelated to other sources of skill. Fund investors recognize such skill by responding more to the past performance of funds with better valuation skills. Consistent with the equilibrium model of Gârleanu and Pedersen (2018), our evidence suggests that as growing capital gets allocated to skilled bond funds, the corporate bond market is becoming more efficient.

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“…This act of mutual funds, tilting towards the bonds with higher yields, is termed as "Reaching-for-yield" (Choi & Kronlund, 2018). Unlike equity funds, bond funds hold illiquid assets, and their low-interest rate setting has pushed bond funds to "reach-for-yield" by holding illiquid assets (Anand et al, 2020;Y. Chen & Qin, 2017).…”

Section: Literature Reviewmentioning

confidence: 99%

Overview of bond mutual funds: A systematic and bibliometric review

Chakraborty

Ghosh

et al. 2021

Cogent Business & Management

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The focus of this review is to exhibit a thorough analysis of prominent aspects in bond funds literature and their conceptual developments employing the trending bibliometric analysis. The study was conducted using the Scopus database, which found 354 scholarly documents during a 40-year period spanning from 1982 to 2021, revealing that the amount of research within these fields has a limited presence in the academic literature. The authors, the publications, thematic groups, distribution of keywords, country of publication, trends, and the papers most frequently cited are examined to get an explicit view of the extant research. Thus, the present review identifies the existing knowledge base, examines it, and demonstrates the visualizing patterns to capture the fact-based insight into trending themes in the amphitheater of bond funds. The review further explicitly identifies three research fronts, i.e. performance measures, risk approaches, and bond fund flows. Finally, the findings of the study would be a virtue for researchers, practitioners, and academicians to proceed to further explore the area for an overview of trends and their empirical investigation.

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The Behavior of Investor Flows in Corporate Bond Mutual Funds

Cited by 76 publications

References 86 publications

Institutional Herding and Its Price Impact: Evidence from the Corporate Bond Market

Institutional Herding and Its Price Impact: Evidence from the Corporate Bond Market

On the Valuation Skills of Corporate Bond Mutual Funds

Overview of bond mutual funds: A systematic and bibliometric review

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