Who Creates and Who Bears Flow Externalities in Mutual Funds?

76 Pages Posted: 28 Sep 2022 Last revised: 10 May 2023

See all articles by Daniel Fricke

Daniel Fricke

Deutsche Bundesbank

Stephan Jank

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 document substantial differences in the flow-performance relationship across investors. In particular, investment funds - as investors in other mutual funds - exhibit a strong and concave relationship, whereas households and insurers display a weaker and convex relationship. Building on these findings, we study how different investors contribute to the negative performance externality from large redemptions. We find that investment funds are net contributors to the outflow externality, whereas insurers and households are net receivers. Overall, our findings raise consumer protection and financial stability concerns.

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

JEL Classification: G10, G11, G23

Suggested Citation

Fricke, Daniel 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=4227047 or http://dx.doi.org/10.2139/ssrn.4227047

Daniel Fricke (Contact Author)

Deutsche Bundesbank ( email )

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

Stephan Jank

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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