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Liquidity management and asset sales by bond funds in the face of investor redemptions in March 2020

Author

Listed:
  • Andreas Schrimpf
  • Ilhyock Shim
  • Hyun Song Shin

Abstract

Investor redemptions are one factor behind asset sales by open-ended mutual funds, but an important additional factor is the selling due to the funds' liquidity management. Funds holding illiquid assets reacted to redemptions in March 2020 by adding to their cash buffers even after meeting investor redemptions. For such funds, asset sales exceeded investor redemptions. Increases in end-of-period cash holdings were less pronounced for funds that started the stress period with larger buffers, suggesting that such funds were less prone to selling at the height of the stress.

Suggested Citation

  • Andreas Schrimpf & Ilhyock Shim & Hyun Song Shin, 2021. "Liquidity management and asset sales by bond funds in the face of investor redemptions in March 2020," BIS Bulletins 39, Bank for International Settlements.
    • Handle: RePEc:bis:bisblt:39
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