Monetary Policy and Fragility in Corporate Bond Funds
Prof. John Chi-Fong KUONG
INSEAD, Assistant Professor of Finance
Date: 18 December 2023 (Monday)
Time: 10:30 am to 12:00 pm
Venue: E22-3010
Host: Prof. Lewis Hon Keung TAM, Associate Professor of Finance
Online registration: https://umac.au1.qualtrics.com/jfe/form/SV_88nMb3wd5Bz8xnM
Abstract
We document aggregate outflows from corporate bond funds days before and after the announcement of increases in the Federal Funds Target rate (FFTar). To rationalize this phenomenon, we build a model in which funds’ net-asset-values (NAVs) are stale and investors strategically redeem to profit from the mispricing when they learn about the increases of FFTar. Consistent with the model’s predictions, we find that stale NAVs and loose monetary policy environments weaken (strengthen) outflows sensitivity to increases in FFTar during illiquid (liquid) market conditions. Our results highlight when and how monetary policy could systematically exacerbate the fragility of corporate bond funds.
Speaker
John KUONG is an Assistant Professor of Finance at INSEAD He teaches Corporate Financial Policy course in the MBA programme, and Research Topics in Corporate Finance course in the PhD programme. John has obtained a PhD in Finance from the London School of Economics, an MSc in Financial Economics from the Toulouse School of Economics, and a BBA from the University of Macau. He has also completed a PhD research internship at the International Monetary Fund in Washington D.C.
His main area of research is banking and corporate finance. His recent research investigates the fragility of the modern collateral-based banking system, the effects of securitisation on mortgage foreclosures, and the optimal design of bank regulation and bail-out policy.
All are welcome!
