Crowding of International Mutual Funds

57 Pages Posted: 15 Mar 2021 Last revised: 29 Jul 2021

See all articles by Tanja Artiga González

Tanja Artiga González

VU University Amsterdam

Teodor Dyakov

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute

Justus Inhoffen

German Institute for Economic Research; VU Amsterdam

Evert Wipplinger

Vrije Universiteit Amsterdam, School of Business and Economics

Date Written: March 13, 2021

Abstract

We study the relationship between crowding and performance in the active mutual fund industry.
We construct a fund-specific measure of crowding using the equity holdings overlap of 17,364 global funds. Funds in the top decile of crowding underperform passive benchmark funds by 1.4% per year. The impact of crowding on performance cannot be attributed to diseconomies of scale.
We explore several mechanisms: a preference for liquid stocks, externalities of peer fund flows, and a coordination problem. We find strongest support for a preference for liquid stocks. Our findings reveal that the tendency of managers to follow correlated strategies is a major concern for fund investors.

Keywords: Mutual funds, crowding, diseconomies of scale

JEL Classification: G15, G23

Suggested Citation

Artiga Gonzalez, Tanja and Dyakov, Teodor and Inhoffen, Justus and Wipplinger, Evert, Crowding of International Mutual Funds (March 13, 2021). Available at SSRN: https://ssrn.com/abstract=3803917 or http://dx.doi.org/10.2139/ssrn.3803917

Tanja Artiga Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, North Holland 1081 HV
Netherlands

Teodor Dyakov (Contact Author)

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+31 20 59 82197 (Phone)
+31 20 59 86020 (Fax)

HOME PAGE: http://www.teodordyakov.work

Tinbergen Institute ( email )

De Boelelaan 1105
Amsterdam, 1081 HV
Netherlands

Justus Inhoffen

German Institute for Economic Research ( email )

Mohrenstraße 58
Berlin, 10117
Germany

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Evert Wipplinger

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

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