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Bond Price Fragility and the Structure of the Mutual Fund Industry

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  • Mariassunta Giannetti
  • Chotibhak Jotikasthira

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.

Suggested Citation

  • Mariassunta Giannetti & Chotibhak Jotikasthira, 2024. "Bond Price Fragility and the Structure of the Mutual Fund Industry," The Review of Financial Studies, Society for Financial Studies, vol. 37(7), pages 2063-2109.
  • Handle: RePEc:oup:rfinst:v:37:y:2024:i:7:p:2063-2109.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad095
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    More about this item

    Keywords

    G12; G23; E52;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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