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Too Big to Ignore?: Hedge Fund Flows and Bond Yields

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Too Big to Ignore? Hedge Fund Flows and Bond Yields. / Kolokolova, Olga; Poon, Ser-Huang; Lin, Ming-Tsung .
In: Journal of Banking and Finance, Vol. 112, 105271, 2020.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Kolokolova, O, Poon, S-H & Lin, M-T 2020, 'Too Big to Ignore? Hedge Fund Flows and Bond Yields', Journal of Banking and Finance, vol. 112, 105271. https://doi.org/10.1016/j.jbankfin.2017.12.009

APA

Kolokolova, O., Poon, S-H., & Lin, M-T. (2020). Too Big to Ignore? Hedge Fund Flows and Bond Yields. Journal of Banking and Finance, 112, Article 105271. https://doi.org/10.1016/j.jbankfin.2017.12.009

Vancouver

Kolokolova O, Poon S-H, Lin M-T. Too Big to Ignore? Hedge Fund Flows and Bond Yields. Journal of Banking and Finance. 2020;112:105271. doi: 10.1016/j.jbankfin.2017.12.009

Author

Kolokolova, Olga ; Poon, Ser-Huang ; Lin, Ming-Tsung . / Too Big to Ignore? Hedge Fund Flows and Bond Yields. In: Journal of Banking and Finance. 2020 ; Vol. 112.

Bibtex

@article{62030ce4d69b4459905c176fd48de796,
title = "Too Big to Ignore?: Hedge Fund Flows and Bond Yields",
abstract = "This paper investigates the information content of aggregate hedge fund flow and its predictive power with respect to bond yields. Using a sample of 9725 hedge funds from 1994 to 2012, we find that fund flow is negatively related to the changes in 10-year Treasury and Moody{\textquoteright}s Baa bond yields one month ahead. This relation is still pronounced after controlling for other determinants of yield changes, including the amount of arbitrage capital available in the economy, suggesting a non-trivial effect of flow-induced hedge fund trading on bond yields. Flow impact on corporate bonds is further amplified during periods of decreasing market liquidity, consistent with a fire-sale hypothesis. Hedge fund flow also predicts convergence between constant maturity swap rate and constant maturity Treasury rate, as well as between the TIPS and Treasury bond yields, suggesting that hedge funds exploit arbitrage opportunities in these fixed-income markets.",
author = "Olga Kolokolova and Ser-Huang Poon and Ming-Tsung Lin",
year = "2020",
doi = "10.1016/j.jbankfin.2017.12.009",
language = "English",
volume = "112",
journal = "Journal of Banking and Finance",
issn = "0378-4266",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Too Big to Ignore?

T2 - Hedge Fund Flows and Bond Yields

AU - Kolokolova, Olga

AU - Poon, Ser-Huang

AU - Lin, Ming-Tsung

PY - 2020

Y1 - 2020

N2 - This paper investigates the information content of aggregate hedge fund flow and its predictive power with respect to bond yields. Using a sample of 9725 hedge funds from 1994 to 2012, we find that fund flow is negatively related to the changes in 10-year Treasury and Moody’s Baa bond yields one month ahead. This relation is still pronounced after controlling for other determinants of yield changes, including the amount of arbitrage capital available in the economy, suggesting a non-trivial effect of flow-induced hedge fund trading on bond yields. Flow impact on corporate bonds is further amplified during periods of decreasing market liquidity, consistent with a fire-sale hypothesis. Hedge fund flow also predicts convergence between constant maturity swap rate and constant maturity Treasury rate, as well as between the TIPS and Treasury bond yields, suggesting that hedge funds exploit arbitrage opportunities in these fixed-income markets.

AB - This paper investigates the information content of aggregate hedge fund flow and its predictive power with respect to bond yields. Using a sample of 9725 hedge funds from 1994 to 2012, we find that fund flow is negatively related to the changes in 10-year Treasury and Moody’s Baa bond yields one month ahead. This relation is still pronounced after controlling for other determinants of yield changes, including the amount of arbitrage capital available in the economy, suggesting a non-trivial effect of flow-induced hedge fund trading on bond yields. Flow impact on corporate bonds is further amplified during periods of decreasing market liquidity, consistent with a fire-sale hypothesis. Hedge fund flow also predicts convergence between constant maturity swap rate and constant maturity Treasury rate, as well as between the TIPS and Treasury bond yields, suggesting that hedge funds exploit arbitrage opportunities in these fixed-income markets.

U2 - 10.1016/j.jbankfin.2017.12.009

DO - 10.1016/j.jbankfin.2017.12.009

M3 - Journal article

VL - 112

JO - Journal of Banking and Finance

JF - Journal of Banking and Finance

SN - 0378-4266

M1 - 105271

ER -