Who Creates and Who Bears Flow Externalities in Mutual Funds?
76 Pages Posted: 28 Sep 2022 Last revised: 10 May 2023
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: Suggested Citation