Measuring the Liquidity Profile of Mutual Funds

International Journal of Central Banking, Forthcoming

41 Pages Posted: 21 Mar 2018 Last revised: 16 Jul 2019

See all articles by Sirio Aramonte

Sirio Aramonte

Bank for International Settlements (BIS)

Chiara Scotti

Board of Governors of the Federal Reserve System

Ilknur Zer

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: July 15, 2019

Abstract

We measure the liquidity profile of open-end mutual funds using the sensitivity of their daily returns to aggregate liquidity. We study how this sensitivity changes around real-activity macroeconomic announcements that reveal large surprises about the state of the economy and after three relevant market events: Bill Gross's departure from PIMCO, Third Avenue Focused Credit Fund's suspension of redemptions, and the effect of Lehman Brothers' collapse on Neuberger Berman. Results show that, following negative news, the sensitivity to aggregate liquidity increases for less-liquid mutual funds, like those that invest in the stocks of small companies and in high-yield corporate bonds. The effect is more pronounced during stress periods, suggesting that a deterioration in the funds' liquidity could amplify vulnerabilities in situations of already weak macroeconomic conditions.

Keywords: liquidity transformation, asset management, mutual funds, market liquidity

JEL Classification: G11, G20, G23

Suggested Citation

Aramonte, Sirio and Scotti, Chiara and Zer, Ilknur, Measuring the Liquidity Profile of Mutual Funds (July 15, 2019). International Journal of Central Banking, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3143774 or http://dx.doi.org/10.2139/ssrn.3143774

Sirio Aramonte

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Chiara Scotti

Board of Governors of the Federal Reserve System ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States

Ilknur Zer (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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