Viet-Dung Doan

Welcome to my page!

I am an Assistant Professor of Finance at Hong Kong Baptist University. I received my Ph.D. in Finance from Purdue University in 2023. My research interests span financial intermediation, over-the-counter markets, and information asymmetry. My current research centers around mutual funds' and ETFs' trading in the municipal bond market.

Research Interests

Mutual Funds, Exchange-Traded Funds, Over-the-Counter Markets, Municipal Bonds, Information Asymmetry

Working Papers

Exchange-Traded Funds and Transparency in Over-the-Counter Markets, 2022

Presented at AFA PhD Poster Session 2021, MFA 2021, FMA 2021, UT Austin PhD Student Symposium 2021

Abstract: This paper explores a new channel through which exchange-traded funds (ETFs) can affect underlying asset prices. In over-the-counter markets, daily disclosure of ETF portfolio holdings increases pre-trade price transparency and thereby retail investors' bargaining power. I show that ETF-held municipal bonds have significantly lower dealer markups than observationally similar non-ETF-held bonds. This effect cannot be explained by selection or ETFs' own trading activity. Rather, ETF disclosure quality is associated with lower retail markups by up to 30 basis points. In the primary market, when municipalities have outstanding ETF-held bonds, their new issues have lower yields and smaller price dispersion.

Informed Investors and Underpricing in Municipal Bond Offerings, 2022

Presented at MFA 2022, FMA 2022 

Semi-finalist for the 2022 FMA Best Paper in Investments

Abstract: This paper reveals a non-monotonic effect of local mutual funds on municipal bond issuance. Offering yields are higher in states having municipal bond funds, and with larger aggregate fund size. However, holding local fund size constant, yields decrease in the number of funds. Such relations hold when local funds' primary market participation is instrumented with the characteristic differences between new issues and existing bonds in fund portfolios. I further propose a security underpricing model that incorporates imperfectly informed investors to confirm my empirical findings. Despite higher borrowing cost, issuers benefit from local funds' certification resulting in retail investors' higher demand.

Mutual Fund Liquidity Creation, 2022

with Sergey Chernenko

(new draft available upon request)

Presented at MFA 2022, AFA 2023

Abstract: We develop a novel measure of the dollar value of liquidity created by open-end mutual funds. Our measure compares the cost to investors of trading on their own in response to liquidity shocks with the costs incurred by open-end mutual funds when trading in response to redemptions. Applying this measure to municipal bond mutual funds, we show that over the 2009-2017 period funds provide liquidity services worth 1.88 cents per dollar of gross redemptions or 50 basis points of fund assets per year. The aggregate value of liquidity services provided during this period was $14-23 billion. We decompose liquidity creation into three components: 1) flow netting, 2) liquidity management, and 3) trade execution, and explore cross-sectional and time-series variation in liquidity creation.

Forced Sales and Dealer Choice in OTC Markets, 2022

with Sergey Chernenko

(new draft available upon request)

Presented at AFA 2022, Fixed Income and Financial Institutions Conference 2022

Abstract: We use trade-level data to study how municipal bond mutual funds trade in response to daily flows. Out of a dollar of outflows, 66–73 cents is initially satisfied using cash buffers. When forced to sell bonds to satisfy redemptions, funds sell more liquid bonds and trade with more central dealers, who may offer faster execution. Forced sales are especially likely to involve more central dealers when funds have little cash, sell lower rated bonds, or sell after periods of aggregate outflows. Funds incur larger markups when trading with more central dealers, but only when selling in response to outflows.

Flow-Induced Trading: Evidence from the Daily Trading of Municipal Bond Mutual Funds, 2024

with Sergey Chernenko

Abstract: We use novel data on the daily flows, trading, and cash buffers of open-end municipal bond mutual funds to study the dynamics of fund flows and trading activity. We document a much stronger reliance on cash buffers than would be suggested by monthly regressions. Although the one-month responses of sales and purchases are very similar, their dynamics are different, with sales being much quicker to respond to outflows. We show that the responsiveness of sales to outflows decreases with the level of markups and increases with aggregate outflows, even controlling for the effect of aggregate outflows on cash buffers.

Work in Progress

Social Capital and Municipal Debt Utilization: Evidence from Municipal Bond Referendum

with Sergey Chernenko, Ha Diep-Nguyen, Nathaniel Feige, and W. Ben McCartney

(preliminary draft here)

Trust and Local Financing Cost: Evidence from Wells Fargo Scandal

with Sergey Chernenko

Retail Investors and Complex Financial Disclosures

with Jake Liu