Crowding of International Mutual Funds

57 Pages Posted: 7 Apr 2023

See all articles by Tanja Artiga González

Tanja Artiga González

VU University Amsterdam

Teodor Dyakov

EDHEC Business School

Justus Inhoffen

DIW Berlin; VU Amsterdam

Evert Wipplinger

Vrije Universiteit Amsterdam, School of Business and Economics

Abstract

We study the relationship between crowding and performance in the active mutual fund industry. Using the equity holdings overlap of 17,364 global funds, we find that funds that crowd into the same stocks underperform passive benchmark funds by 1.4% per year. The negative returns to crowding can at least in part be explained by excess demand for liquidity and the associated discount for holding liquid stocks. We show that our measure of crowding contains novel information about performance that is not reflected in other variables that describe funds’ investment environment, such as fund size and style. Our findings suggest that crowding of investment opportunities is important for understanding diminishing returns.

Keywords: Mutual funds, crowding, performance, diminishing returns

Suggested Citation

Artiga Gonzalez, Tanja and Dyakov, Teodor and Inhoffen, Justus and Wipplinger, Evert, Crowding of International Mutual Funds. Available at SSRN: https://ssrn.com/abstract=4412733 or http://dx.doi.org/10.2139/ssrn.4412733

Tanja Artiga Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
Amsterdam, North Holland 1081 HV
Netherlands

Teodor Dyakov (Contact Author)

EDHEC Business School ( email )

393 Promenade des anglais
Nice, 06202
France

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

Justus Inhoffen

DIW Berlin ( 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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