Network externalities in mutual funds

Blocher, Jesse

doi:10.1016/j.finmar.2016.04.001

Cited by 39 publications

(12 citation statements)

References 44 publications

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“…Fourth, non-contemporaneous specifications make more economic sense than contemporaneous regressions in the fund industry (Blocher, 2014). The instrumentation process in the system GMM specification involves non-contemporary effects of the independent variables on the outcome indicator.…”

Section: Modelmentioning

confidence: 99%

Effects of asymmetric information on market timing in the mutual fund industry

Tchamyou

Asongu

Nwachukwu

2018

IJMF

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Purpose The purpose of this paper is to investigate the effects of information asymmetry (between the realized return and the expected return) on market timing in the mutual fund industry. Design/methodology/approach For the purpose, the authors use a panel of 1,488 active open-end mutual funds for the period 2004-2013. The authors use fund-specific time-dynamic betas. The information asymmetry is measured as the standard deviation of idiosyncratic risk. The data set is decomposed into five market fundamentals in order to emphasis the policy implications of the findings with respect to: equity, fixed income, allocation, alternative, and tax-preferred mutual funds. The empirical evidence is based on endogeneity-robust difference and system generalized method of moments. Findings The following findings are established. First, the information asymmetry broadly follows the same trend as volatility, with a higher sensitivity to market risk exposure. Second, fund managers tend to raise (cutback) their risk exposure in time of high (low) market liquidity. Third, there is evidence of convergence in equity funds. The authors may, therefore, infer that equity funds with lower market risk exposure are catching-up with their counterparts with higher exposure to fluctuation in market conditions. Originality/value The paper complements the sparse literature on market timing in the mutual fund industry with time-dynamic betas, information asymmetry and an endogeneity-robust empirical approach.

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Section: Modelmentioning

confidence: 99%

Effects of asymmetric information on market timing in the mutual fund industry

Tchamyou

Asongu

Nwachukwu

2018

IJMF

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“…One possible explanation for this finding is that funds offset high liquidity costs by charging lower fees (Pastor et al, 2020), which masks the impact of P eerF low among funds with different degree of crowding. In additional tests, we follow Blocher (2016) and use lagged P eerF low as an instrument in contemporaneous regressions, but do find no statistically significant relationship. Overall, we find limited support for the fund flows channel.…”

Section: Introductionmentioning

confidence: 95%

Crowding of International Mutual Funds

et al. 2021

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We study the relationship between crowding and performance in the active mutual fund industry. We construct a fund-specific measure of crowding using the equity holdings overlap of 17,364 global funds. Funds in the top decile of crowding underperform passive benchmark funds by 1.4% per year. The impact of crowding on performance cannot be attributed to diseconomies of scale. We explore several mechanisms: a preference for liquid stocks, externalities of peer fund flows, and a coordination problem. We find strongest support for a preference for liquid stocks. Our findings reveal that the tendency of managers to follow correlated strategies is a major concern for fund investors.

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“…The economics literature has long recognized the role of heterogeneous consumer tastes and product differentiation in imperfectly competitive markets (e.g., Chamberlin (1933), Robinson (1933)). In contrast to previous papers in the literature that use data on a fund's securities holdings to capture differentiation (see, for example, Wahal and Wang (2011), Khorana and Servaes (2012), Blocher (2016), andHoberg, Kumar, andPrabhala (2018)), we use textual analysis of the mutual fund's prospectus.…”

Section: B Measuring Differentiationmentioning

confidence: 99%

Measuring Innovation and Product Differentiation: Evidence from Mutual Funds

Kostovetsky¹,

Warner

2019

The Journal of Finance

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We study innovation and product differentiation using a uniqueness measure based on textual analysis of prospectuses. We find that small and start‐up families have higher start rates than larger families, and their products are more unique. Unique strategies attract more inflows in the first three years, and investors respond more to text‐based uniqueness than other measures such as holdings or returns uniqueness. For established funds, word uniqueness has weak negative power for explaining returns, so investors in competitive equilibrium do not sacrifice much performance to get specialized products. Uniqueness attenuates the flow‐performance relation, reducing the risk of investor outflows.

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Network externalities in mutual funds

Cited by 39 publications

References 44 publications

Effects of asymmetric information on market timing in the mutual fund industry

Effects of asymmetric information on market timing in the mutual fund industry

Crowding of International Mutual Funds

Measuring Innovation and Product Differentiation: Evidence from Mutual Funds

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