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Who creates and who bears flow externalities in mutual funds?

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  • Fricke, Daniel
  • Jank, Stephan
  • Wilke, Hannes

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.

Suggested Citation

  • Fricke, Daniel & Jank, Stephan & Wilke, Hannes, 2022. "Who creates and who bears flow externalities in mutual funds?," Discussion Papers 41/2022, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:412022
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    References listed on IDEAS

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    Cited by:

    1. Allaire, Nolwenn & Breckenfelder, Johannes & Hoerova, Marie, 2023. "Fund fragility: the role of investor base," Working Paper Series 2874, European Central Bank.
    2. Milan Szabo, 2023. "Cyclical Investment Behavior of Investment Funds: Its Heterogeneity and Drivers," Working Papers 2023/5, Czech National Bank.

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    More about this item

    Keywords

    asset management; mutual funds; externalities; contagion; performance;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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