Working Paper: NBER ID: w26626
Authors: Jun Kyung Auh; Jennie Bai
Abstract: Despite common wisdom that equities and bonds are segmented, the organization structure of fund families can offset frictions regarding cross-asset segmentation. We find that actively-managed equity funds and corporate bond funds linked within a mutual fund family exhibit a significant co-movement in holdings of commonly-held firms' equities and bonds. Such cross-holdings facilitate information spillover, manifesting itself in the co-movement. Synthesizing cross-asset information can predict future equity returns and create profits for fund families as well as general investors. Our findings accentuate the importance of collaboration between equity funds and bond funds within fund families.
Keywords: Mutual Funds; Equity; Bonds; Information Synergy
JEL Codes: G11; G23; G31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| shared insights (O36) | sister funds adjust their holdings (G23) |
| structure of fund families (G23) | beneficial information exchange (O36) |
| sister funds within the same mutual fund family (G23) | comovement in their holdings of commonly-held firms' equities and bonds (G10) |
| one standard deviation increase in bond holdings (G12) | increase in the same firm's equity holdings (G32) |
| bond holding changes (E43) | future equity returns (G12) |