Date of Award
Bachelor of Arts
In this research, I examine the impact of cash holdings on the risk and returns of U.S. corporate bond mutual funds. Using a sample of 1,672 corporate bond funds during 2002-2019, I find that higher cash holdings are significantly associated with lower risk-adjusted returns and lower total and idiosyncratic volatilities of corporate bond funds. Further analysis suggests that these results are mainly driven by non-crisis periods when cash holdings might adversely impact the alpha of corporate bond mutual funds while reducing risk for these funds. During the crisis periods, however, we do not document a negative relation between cash holdings and corporate bond fund performance although we still document a negative relation between cash holdings and fund risk-taking. Overall, the results suggest that the liquidity provided by cash holdings make corporate bond funds less risky.
Punnoose, Andrew, "On The Cash Holdings of Corporate Bond Mutual Funds" (2021). Financial Analyst. 18.