Who creates and who bears flow externalities in mutual funds?

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See all articles by Daniel Fricke

Daniel Fricke

Deutsche Bundesbank; University College London; London School of Economics & Political Science (LSE) - Systemic Risk Centre

Stephan Jank

University of Cologne - Centre for Financial Research (CFR); Deutsche Bundesbank

Hannes Wilke

Deutsche Bundesbank

Date Written: September 22, 2022

Abstract

Using a unique dataset on the sectoral ownership structure of euro area equity mutual funds, we study how different investor groups contribute to the negative performance externality from large outflows. Investment funds, as holders of mutual funds, are the main contributors to the flow externality. Insurers and households, in particular less financially-sophisticated ones, are the main receivers. These differences are due to investment funds reacting more strongly on past performance and displaying a more procyclical investment behavior compared to households and insurers. Our results raise consumer protection and financial stability concerns due to the trading activity of short-term oriented investors.

Keywords: asset management; mutual funds; externalities; contagion; performance.

JEL Classification: G10, G11, G23

Suggested Citation

Fricke, Daniel and Jank, Stephan and Jank, Stephan and Wilke, Hannes, Who creates and who bears flow externalities in mutual funds? (September 22, 2022). Available at SSRN: https://ssrn.com/abstract=

Daniel Fricke (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

London School of Economics & Political Science (LSE) - Systemic Risk Centre

Houghton St, London WC2A 2AE, United Kingdom
London

Stephan Jank

University of Cologne - Centre for Financial Research (CFR) ( email )

Albertus-Magnus Platz
Cologne, 50923
Germany

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Hannes Wilke

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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