Who Creates and Who Bears Flow Externalities in Mutual Funds?

74 Pages Posted: 25 Nov 2022

See all articles by Daniel Fricke

Daniel Fricke

Deutsche Bundesbank

Stephan Jank

Deutsche Bundesbank

Hannes Wilke

Deutsche Bundesbank

Date Written: 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 Wilke, Hannes, Who Creates and Who Bears Flow Externalities in Mutual Funds? (2022). Deutsche Bundesbank Discussion Paper No. 41/2022, Available at SSRN: https://ssrn.com/abstract=4285852 or http://dx.doi.org/10.2139/ssrn.4285852

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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