BAFI Academic Seminar | Weatherhead School at Case Western Reserve University

BAFI Academic Seminar

Mutual Fund Flows and Fluctuations in Credit and Business Cycles

Different measures of credit-market overheating are known to precede downturns in real economic activity. There is thus growing interest in understanding credit-market overheating and its origin. We offer an early indicator for all known measures of credit-market overheating. Our measure is based on intra-family flow shifts towards high-yield bond mutual funds. In particular, our indicator positively predicts increases in net bond issuance, growth in financial intermediary balance sheets, shares of highyield bond issuers, reaching for yield in the credit market, and decreases in different measures of credit spreads. In addition to predicting the credit cycle, our measure directly predicts the business cycle by positively predicting GDP growth and negatively predicting unemployment up to one year earlier than other leading indicators in the literature. We interpret our indicator as an early sign of a shift in investors’ demand towards high-risk credit, and so our results support the investors’ demand-based narrative of credit cycles. Our indicator can be useful for policymakers trying to take precautionary steps against credit-market overheating.  This paper is co-authored with Azi Ben-Rephael, Indiana University and Itay Goldstein, University of Pennsylvania.

Fee: [Yes/No/Varies]

Contact Information:
Tedda Nathan
Dept. Administrator
216-368-2040 [Phone]
216-368-6249 [Fax]

Friday, Feb. 23, 2018 from 10:30 a.m. to noon
Peter B. Lewis Building, Room 05
11119 Bellflower Road
Cleveland, OH 44106-7235
United States
Speaker(s): Jaewon Choi, Un of Illinois
Choi paper


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