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Fund Flows and Asset Prices: A Baseline Model


  • Dimitri Vayanos


  • Paul Woolley



We study flows between investment funds and their effects on asset prices in a simple two period version of Vayanos and Woolley (2010, VW). As in VW, flows cause assets to commove in ways unrelated to fundamentals, affect assets with high idiosyncratic risk the most, and raise the expected returns of funds experiencing outflows. We sketch how adding periods can generate other results of VW such as momentum, reversal, amplification, and commercial-risk management. We also extend the VW framework to study how index redefinitions affect the price level and the extent of comovement.

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  • Dimitri Vayanos & Paul Woolley, 2011. "Fund Flows and Asset Prices: A Baseline Model," FMG Discussion Papers dp667, Financial Markets Group.
  • Handle: RePEc:fmg:fmgdps:dp667

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    References listed on IDEAS

    1. Suleyman Basak & Anna Pavlova, 2013. "Asset Prices and Institutional Investors," American Economic Review, American Economic Association, vol. 103(5), pages 1728-1758, August.
    2. Jotikasthira, Chotibhak & Lundblad, Christian T & Ramadorai, Tarun, 2009. "Asset fire sales and purchases and the international transmission of financial shocks," CEPR Discussion Papers 7595, C.E.P.R. Discussion Papers.
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    1. repec:eee:inecon:v:108:y:2017:i:c:p:413-430 is not listed on IDEAS
    2. Raddatz, Claudio & Schmukler, Sergio L. & Williams, Tomás, 2017. "International asset allocations and capital flows: The benchmark effect," Journal of International Economics, Elsevier, vol. 108(C), pages 413-430.

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