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Yiming Ma, Kairong Xiao, Yao Zeng, Mutual Fund Liquidity Transformation and Reverse Flight to Liquidity, The Review of Financial Studies, Volume 35, Issue 10, October 2022, Pages 4674–4711, https://doi.org/10.1093/rfs/hhac007
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Abstract
We identify fixed-income mutual funds as an important contributor to the unusually high selling pressure in liquid asset markets during the COVID-19 crisis. We show that mutual funds experienced pronounced investor outflows amplified by their liquidity transformation. In meeting redemptions, funds followed a pecking order by first selling their liquid assets, including Treasuries and high-quality corporate bonds, which generated the most concentrated selling pressure in these markets. Overall, the estimated price impact of mutual funds was sizable at a third of the increase in Treasury yields and a quarter of the increase in corporate bond yields during the COVID-19 crisis.