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Co-Insurance in Mutual Fund Families

Luis Goncalves-Pinto

National University of Singapore

Breno Schmidt

Emory University - Goizueta Business School

December 9, 2013

We show that fire sales by distressed funds are systematically offset by purchases of other funds in the same family. Our results suggest that these off-exchange trades are mainly the outcome of coordinated strategies at the fund manager level. This type of co-insurance is more likely when (i) there is reciprocity in repeated interactions, (ii) the same manager oversees the funds on both sides of the transaction, and (iii) the distressed fund holds more illiquid assets. Overall, co-insurance diminishes the price impact of widespread selling by distressed funds, and helps illiquid funds pay a lower cost of distress.

Number of Pages in PDF File: 43

Keywords: Mutual Fund Families, Internal Capital Markets, Asset Fire Sales, Price Impact, Stock Liquidity, Managerial Incentives, Co-Insurance, Implicit Contracts

JEL Classification: G11, G23, G30, G32

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Date posted: August 17, 2009 ; Last revised: December 10, 2013

Suggested Citation

Goncalves-Pinto, Luis and Schmidt, Breno, Co-Insurance in Mutual Fund Families (December 9, 2013). Available at SSRN: https://ssrn.com/abstract=1455929 or http://dx.doi.org/10.2139/ssrn.1455929

Contact Information

Luis Goncalves-Pinto (Contact Author)
National University of Singapore ( email )
Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
HOME PAGE: http://luis.goncalvespinto.com
Breno Schmidt
Emory University - Goizueta Business School ( email )
1300 Clifton Road
Atlanta, GA 30322-2722
United States
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