Seminar (Dept. of Finance)

Title: Capital Concentration of the Bond Fund Industry and Bond Market Fragility

Speaker: Yong Chen, Professor, Mays Business School, Texas A&M University

Time: 10:00-11:30, June 19, 2023(Monday)

Venue: Room 502, Mingde Business Building

Language: English

ABSTRACT:

The bond fund industry features high capital concentration with a great fraction of capital managed by large funds. We find that while trades of large funds stabilize the corporate bond market in general, they introduce fragility to underlying bonds during illiquid markets. Based on a quasi-experiment that changes trading fund size exogenously, we show that bond return volatility increases (decreases) with trading fund size when the aggregate market liquidity is low (high). Furthermore, large funds tend to provide liquidity in normal times but switch to demanding liquidity during market stress. Overall, our results reveal an important yet subtle relation between fund size and bond market fragility.

SHORT BIOGRAPHY:

Yong Chen is a Professor of Finance, the David R. Norcom ’73 Endowed Professor, and Coordinator of the Finance Ph.D. Program at Mays Business School, Texas A&M University. Prior to joining Mays Business School in 2012, he was on the faculty of Virginia Tech. Dr. Chen received B.A. and M.A. in Economics from Nankai University and Ph.D. in Finance from Boston College.Dr. Chen’s research area is empirical asset pricing and investments with a focus on the interaction between the investment of hedge funds and the behavior of asset prices. His research has been published in leading academic journals including the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Journal of Financial and Quantitative Analysis, and Management Science and practitioner journals including Financial Analysts Journal and the Journal of Investment Management, as well as presented at numerous university workshops, academic and practitioner conferences, financial policymakers, and hedge funds. His research has received several awards and grants, such as the Graham and Dodd Scroll Award from the CFA Institute and a research grant from the Q group.