Investor Flows and Fragility in Corporate Bond Funds

50 Pages Posted: 21 Apr 2015 Last revised: 18 Jul 2015

See all articles by Itay Goldstein

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Hao Jiang

Michigan State University

David T. Ng

Cornell University

Date Written: June 25, 2015


Investment in bond mutual funds has grown rapidly in recent years. With it, there is a growing concern that they are a new source of potential fragility. While there is a vast literature on flows in equity mutual funds, relatively little research has been done on bond mutual funds. In this paper, we explore flow patterns in corporate-bond mutual funds. We show that their flows behave quite differently than those of equity mutual funds. While we confirm the well-known convex shape for equity funds’ flow-to-performance over the period of our study (1992-2014), we show that during the same time, corporate bond funds exhibit no convexity. Under some performance benchmarks, corporate bond funds even exhibit a concave shape: their outflows are sensitive to bad performance more than their inflows are sensitive to good performance. Moreover, corporate bond funds tend to have more concave flow-performance relationships when they have more illiquid assets and when the overall market illiquidity is high. These results point to the possibility of fragility: The illiquidity of corporate bonds may generate a first mover advantage (or strategic complementarities) among investors in corporate-bond funds, amplifying their response to bad performance or other bad news.

Keywords: Fund Flows, Fragility, Bond Funds, Runs

JEL Classification: G10, G23, G28

Suggested Citation

Goldstein, Itay and Jiang, Hao and Ng, David T., Investor Flows and Fragility in Corporate Bond Funds (June 25, 2015). Available at SSRN: or

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

Hao Jiang (Contact Author)

Michigan State University ( email )

315 Eppley Center
Department of Finance
East Lansing, MI 48824
United States


David T. Ng

Cornell University ( email )

Ithaca, NY 14853
United States

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