Do Bond Mutual Funds Destabilize the Corporate Bond Market?

55 Pages Posted: 5 Aug 2015 Last revised: 16 Jun 2016

See all articles by Saeid Hoseinzade

Saeid Hoseinzade

Suffolk University - Department of Finance

Date Written: April 25, 2016


Corporate bond mutual funds engage in liquidity transformation, raising concerns among academics and policymakers that correlated redemptions will destabilize the corporate bond market. However, estimating regressions that focus within issuer-quarter, I find little evidence that redemptions or resulting sell-offs push corporate bond prices below fundamental values. To reconcile my finding with contrasting findings for equity funds, I analyze both investor flows and portfolio management strategies. While bond fund investors demonstrate bank-run like behavior, bond fund managers hold a significant amount of liquid assets, allowing them to manage redemptions without excessively liquidating corporate bonds, even during the financial crisis.

Keywords: Corporate Bond Mutual Funds, Market Destabilization, Bank Runs, Asset Fire Sales

JEL Classification: G12, G20, G23

Suggested Citation

Hoseinzade, Saeid, Do Bond Mutual Funds Destabilize the Corporate Bond Market? (April 25, 2016). Available at SSRN: or

Saeid Hoseinzade (Contact Author)

Suffolk University - Department of Finance ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States


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