Cross-trading and Liquidity Management: Evidence from Municipal Bond Funds
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Date
2018-09-06
Authors
Yang, Jingyun
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon
Abstract
The high flow-performance sensitivity in open-end municipal bond funds motivates fund managers to actively manage funding liquidity risk and reduce the costs of flow-driven transactions. Funds with volatile past flows build up liquidity buffers by holding more cash and liquid municipal bonds in their portfolios. Funds rely on cash and liquid securities in flow management. Unconventional liquidity management tools, such as cross-trading between funds in the same family, are used by municipal bond funds in extreme situations. Fund families coordinate cross-trades between open- and low-value closed-end funds only when open-end funds are in distress.
Description
Keywords
cross-trading, liquidity management, open-end fund