{"title":"Do mutual funds and ETFs affect the commonality in liquidity of corporate bonds?","authors":"Efe Cotelioglu","doi":"10.1016/j.jempfin.2024.101520","DOIUrl":null,"url":null,"abstract":"<div><p>This paper explores the influence of increasing ownership in fixed-income ETFs and mutual funds on liquidity commonality among corporate bonds. The unpredictable nature of liquidity demands in these funds may lead to correlated trading in underlying illiquid bonds. The study finds a positive and significant relationship between ETF ownership and liquidity commonality in investment-grade corporate bonds. In contrast, mutual fund or index fund ownership does not exhibit a similar effect, a result that differentiates corporate bonds from equities. This distinction from equities is attributed to different liquidity management strategies employed by equity and corporate bond mutual funds. The paper also highlights factors contributing to the varying impacts of ETFs and mutual funds on corporate bonds, including correlated trading due to fund flows, differences in investor clienteles, and the role of ETF arbitrage activities.</p></div>","PeriodicalId":15704,"journal":{"name":"Journal of Empirical Finance","volume":"78 ","pages":"Article 101520"},"PeriodicalIF":2.1000,"publicationDate":"2024-06-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of Empirical Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S0927539824000550","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
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Abstract
This paper explores the influence of increasing ownership in fixed-income ETFs and mutual funds on liquidity commonality among corporate bonds. The unpredictable nature of liquidity demands in these funds may lead to correlated trading in underlying illiquid bonds. The study finds a positive and significant relationship between ETF ownership and liquidity commonality in investment-grade corporate bonds. In contrast, mutual fund or index fund ownership does not exhibit a similar effect, a result that differentiates corporate bonds from equities. This distinction from equities is attributed to different liquidity management strategies employed by equity and corporate bond mutual funds. The paper also highlights factors contributing to the varying impacts of ETFs and mutual funds on corporate bonds, including correlated trading due to fund flows, differences in investor clienteles, and the role of ETF arbitrage activities.
期刊介绍：
The Journal of Empirical Finance is a financial economics journal whose aim is to publish high quality articles in empirical finance. Empirical finance is interpreted broadly to include any type of empirical work in financial economics, financial econometrics, and also theoretical work with clear empirical implications, even when there is no empirical analysis. The Journal welcomes articles in all fields of finance, such as asset pricing, corporate finance, financial econometrics, banking, international finance, microstructure, behavioural finance, etc. The Editorial Team is willing to take risks on innovative research, controversial papers, and unusual approaches. We are also particularly interested in work produced by young scholars. The composition of the editorial board reflects such goals.
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