Mutual Fund Fragility, Dealer Liquidity Provision, and the Pricing of Municipal Bonds
研究新冠疫情中共同基金与交易商的互动如何导致市政债券市场脆弱性，发现危机期间交易商对共同基金持有债券的流动性提供骤降，加剧价格下跌，且危机后共同基金风险暴露越大的债券利差上升越多。
Against the backdrop of COVID-19, we study how the interactions of mutual funds and dealers introduce fragility to the municipal bond market and induce lasting market impacts. During the crisis, trading surges, whereas dealers’ liquidity provision plunges for mutual-fund-held bonds, leading to greater price depressions in these bonds. Importantly, the crisis reshapes the market’s perceptions of mutual fund fragility risks, with the aftermath-yield spreads widening significantly more for bonds with greater mutual fund exposures. Such postcrisis pricing effects reflect dealers’ continued reluctance to provide liquidity for mutual fund–held bonds, and they are stronger for bonds whose mutual fund holders are more susceptible to investor runs. This paper was accepted by Victoria Ivashina, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4912 .