Global Financial Stability Notes

Fund Investor Types and Bond Market Volatility

By Benjamin Mosk, Felix Suntheim

March 12, 2025

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Benjamin Mosk, and Felix Suntheim. "Fund Investor Types and Bond Market Volatility", Global Financial Stability Notes 2025, 002 (2025), accessed March 17, 2025, https://0-doi-org.library.svsu.edu/10.5089/9798229003087.065

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Summary

This note explores the connection between the varied investor profiles of exchange-traded funds (ETFs) and open-ended mutual funds (OEMFs) and the return volatility of the securities they hold. Based on the security-level data of US ETF and OEMF holdings, the analysis suggests that, on aggregate, a higher ETF ownership share may be associated with lower bond return volatility. However, there is a stark divergence between the behavior of institutional and retail ETF investors and their impact on the underlying market. When a larger share of a bond is owned by institutional investors through ETFs, its volatility tends to be higher. Conversely, retail investors tend to offset this impact of institutional investors. This disparity is not evident for OEMFs.

Subject: Asset and liability management, Asset management, Asset prices, Bonds, Corporate bonds, Economic and financial statistics, Financial institutions, Financial markets, Financial sector policy and analysis, Financial sector stability, Flow of funds, Monetary statistics, Mutual funds, National accounts, Prices, Securities, Securities markets

Keywords: Asset management, Asset prices, Bond Market Volatility, Bonds, Corporate bonds, Euro Area, Exchange-Traded Funds, Federal Reserve Bank of New York, Financial sector stability, Flow of funds, Fragility, Fund liquidity risk, Global, Global Financial Stability, Institutional Investors, Liquidity, Market Stress, Monetary statistics, Mutual funds, Open-Ended Mutual Funds, Retail Investors, Securities, Securities markets

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