Download this Paper Open PDF in Browser

Interfund Lending in Mutual Fund Families: Role in Liquidity Management

49 Pages Posted: 16 Aug 2015 Last revised: 18 May 2017

Vikas Agarwal

Georgia State University; University of Cologne - Centre for Financial Research (CFR)

Haibei Zhao

Lehigh University

Date Written: May 17, 2017

Abstract

Although the 1940 Act restricts interfund lending within a mutual fund family, families can apply for regulatory exemptions to participate in interfund lending. We find that the monitoring mechanisms and investment restrictions influence the family’s decision to apply for interfund lending. We document several consequences of interfund lending. First, funds participating in interfund lending programs reduce their cash holdings, increase their investments in illiquid assets, and hold more concentrated portfolios. Second, investors in participating funds exhibit less run-like behavior as indicated by weaker flow-performance sensitivity. Third, participating funds help mitigate asset fire sales caused by extreme investor outflows.

Keywords: Funding liquidity, fund families, liquidity management

JEL Classification: G18, G23, G32

Suggested Citation

Agarwal, Vikas and Zhao, Haibei, Interfund Lending in Mutual Fund Families: Role in Liquidity Management (May 17, 2017). Available at SSRN: https://ssrn.com/abstract=2644605 or http://dx.doi.org/10.2139/ssrn.2644605

Vikas Agarwal (Contact Author)

Georgia State University ( email )

35 Broad Street,
Suite 1221
Atlanta, GA 30303-3083
United States
404-413-7326 (Phone)
404-413-7312 (Fax)

HOME PAGE: http://www.gsu.edu/~fncvaa

University of Cologne - Centre for Financial Research (CFR)

Albertus-Magnus Platz
Cologne, 50923
Germany

Haibei Zhao

Lehigh University ( email )

621 Taylor Street, RBC 323
Bethlehem, PA PA 18018
United States

HOME PAGE: http://https://sites.google.com/a/lehigh.edu/haibei/

Paper statistics

Downloads
220
Rank
116,239
Abstract Views
897