Gabriele Ciminelli, John Rogers, Wenbin Wu, 05 March 2022

The capital flows literature does not distinguish between increases in US interest rates caused by upward revisions in the Fed economic outlook (information shocks) from those that are not (pure monetary policy shocks). This column argues that this distinction is crucial. Pure monetary policy shocks have conventional, negative effects but positive information shocks do not. The latter even drive a reallocation out of US Treasuries and into growth-sensitive US assets. If the current Fed tightening cycle is driven by expectations of stronger growth, it might not be bad news for emerging markets.

Rui Albuquerque, Yrjo Koskinen, Raffaele Santioni, 23 November 2021

How did the stock market crash caused by Covid-19 affect different asset classes and fund types? This column studies the trading behaviour of actively managed equity mutual funds in the US during the crisis and finds that funds with high environmental, social, and governance ratings helped to stabilise the market, but other funds also provided support for ESG stocks. All funds experiencing inflows increased their net purchases, but this behaviour was stronger for ESG funds. Non-ESG funds experiencing outflows increased their net sales, but this was limited to their holdings of non-ESG stocks.

Massimiliano Affinito, Raffaele Santioni, 15 November 2021

Covid-19 had a substantial impact on financial markets around the world. This column uses granular worldwide data to assess mutual fund portfolio responses to the crisis. The authors find that mutual funds divested from assets considered in most trouble at the time – i.e. those issued in countries and by industries most affected by the pandemic – but with several dimensions of heterogeneity according to asset type, investment policy, and performance. The findings corroborate the existence of an unconventional monetary policy channel acting through mutual funds that could be used to stabilise the funds themselves.

Lubos Pastor, Blair Vorsatz, 30 July 2020

Active fund managers are widely believed to outperform during market downturns. This column uses daily returns from US active equity mutual funds to examine fund performance and investor behaviour in the midst of the COVID-19 crisis. It finds that active equity mutual funds underperform a variety of passive benchmarks, contradicting the popular belief that active managers outperform in downturns. In addition, investors have favoured sustainable funds during the crisis, suggesting that sustainability is now viewed as a necessity rather than a luxury good.

Henri Servaes, 30 May 2019

Performance fee-based contracts, which aim to align the interests of the fund manager with that of the investor, have been controversial in mutual funds markets, and are once again under review in Europe. This column presents empirical evidence showing that performance fee contracts do not improve fund performance, particularly in instances where contracts fail to specify a benchmark for results.

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.

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