How fund design affects volatility – by shaping both trading and investor composition

Mihai Prelipcean

Exchange-traded funds and open-ended mutual funds have grown rapidly, and they are increasingly expanding into illiquid asset classes such as corporate bonds. This column argues that this trend could lead to increased volatility in corporate bond markets, especially during periods of market stress. Furthermore, risks vary significantly depending on the type of investor (retail or institutional) and the way funds are utilised. Policymakers need to understand how the structural features of