Flow-Induced Trading: Evidence from the Daily Trading of Municipal Bond Mutual Funds

62 Pages Posted: 30 Jan 2024

See all articles by Sergey Chernenko

Sergey Chernenko

Purdue University - Department of Management

Viet-Dung Doan

Hong Kong Baptist University

Date Written: January 4, 2024

Abstract

We use novel data on the daily flows, trading, and cash buffers of open-end municipal bond mutual funds to study the dynamics of fund flows and trading activity. We document a much stronger reliance on cash buffers than would be suggested by monthly regressions. Although the one-month responses of sales and purchases are very similar, their dynamics are different, with sales being much quicker to respond to outflows. We show that the responsiveness of sales to outflows decreases with the level of markups and increases with aggregate outflows, even controlling for the effect of aggregate outflows on cash buffers.

Keywords: fire sales, mutual fund flows, municipal bonds, liquidity management, daily trading

JEL Classification: G11, G12, G23

Suggested Citation

Chernenko, Sergey and Doan, Viet-Dung, Flow-Induced Trading: Evidence from the Daily Trading of Municipal Bond Mutual Funds (January 4, 2024). Available at SSRN: https://ssrn.com/abstract=4684397 or http://dx.doi.org/10.2139/ssrn.4684397

Sergey Chernenko (Contact Author)

Purdue University - Department of Management ( email )

West Lafayette, IN 47907-1310
United States
(765) 494-4413 (Phone)

HOME PAGE: http://www.sergeychernenko.com

Viet-Dung Doan

Hong Kong Baptist University ( email )

Renfrew Road 34
Kowloon Tong
Hong Kong

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