Markus Ibert, Ron Kaniel, Stijn Van Nieuwerburgh, Roine Vestman, 08 September 2017

Empirical analysis of mutual funds has focused on the relationship between funds and fund investors, and little is known about the nature of compensation contracts between firms and managers. This column uses Swedish data to provide novel insights on the relationship between mutual fund firms and manager compensation. In contrast to how investors compensate the fund company, a concave relationship is observed between pay and revenue. The sensitivity of pay to performance is surprisingly weak, with firm-level characteristics playing an important role in dynamic compensation.

Ron Kaniel, Robert Parham, 06 March 2016

Correlations between media attention and capital flows to investment vehicles are well established. However, the question arises of whether this is due to new information conveyed or if it is just an artefact of the attention itself. This column employs fund rankings from the Wall Street Journal to investigate the issue. It shows that media attention does drive these investment decisions, even if no new information is conveyed. It further argues that financial intermediaries are aware of this effect and exploit it.

Gaston Gelos, Hiroko Oura, 25 July 2015

The growth of the asset management industry has raised concerns about its potential impacts on financial stability. This column assesses the systemic risk created by fund managers’ incentive problems and a first-mover advantage for end investors. Fund flows and fund ownership affect asset prices, and fund managers’ behaviour can amplify risks. This lends support to the expansion and strengthening of industry oversight, both at the individual fund and market levels.

Gaston Gelos, Hiroko Oura, 23 August 2014

The landscape of portfolio investment in emerging markets has evolved considerably over the past 15 years. Financial markets have deepened and become more internationally integrated. The mix of global investors has also changed, with more money intermediated by mutual funds. This column explains that these changes have made capital flows and asset prices in these economies more sensitive to global financial shocks. However, broad-based financial deepening and improved institutions can enhance the resilience of emerging-market economies.

Gabriel Chodorow-Reich, 27 July 2014

The monetary policies implemented by the Federal Reserve since late 2008 have raised concerns about the risk taking of financial institutions. This column discusses the effect of some of these policies on life insurance companies and market mutual funds. While the effect on life insurance companies has been stabilising, money market funds did not actively reach for yield.

Claudio Raddatz, Sergio Schmukler, 22 September 2011

As the financial crisis spread throughout the world, attention fixed on those working in the stock and bond markets, with many accusing them of making the crisis worse. This column looks at data on international mutual funds since 1996 and finds that when there is a crisis, equity funds tend to amplify the shock by acting procyclically, while bond funds transmit the crisis across countries by acting countercyclically.