Liquidity Management and Redemption Risk in Fixed-income Mutual Funds

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Volume Title
School of Business | Bachelor's thesis
Date
2022
Major/Subject
Mcode
Degree programme
Rahoitus
Language
en
Pages
20
Series
Abstract
I analyze the liquidity management practices of U.S. open-end fixed-income funds between 1999 and 2021. Recognizing the mismatch in liquidity between funds’ liquid claims and the underlying bonds, I present evidence that fixed-income funds prefer to use existing cash reserves to meet withdrawals but switch to liquidating assets across the entire portfolio during times of aggregate uncertainty and when the portfolio is particularly illiquid. I also show that fixed-income funds replenish liquidity buffers after periods of successive net outflows and do so especially conscientiously in a volatile macroeconomic environment.
Description
Thesis advisor
Shin, Sean
Keywords
Liquidity Management, Fixed-income, Mutual Funds, Illiquidity Risk
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