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Keywords:mutual funds 

Report
Monetary Policy and the Run Risk of Loan Funds

Loan funds are open-end mutual funds holding predominantly corporate leveraged loans. We document empirically that loan funds are significantly more susceptible to run risk than any other category of debt funds, including corporate bond funds. Most importantly, we establish a link between loan funds’ flows and monetary policy, based on the institutional characteristics of their portfolio holdings. We find robust evidence indicating a pro-cyclical relationship between monetary policy and loan-fund flows. This relationship, however, is asymmetric: weaker for policy-rate increases and stronger ...
Staff Reports , Paper 1008

Working Paper
An Industrial Organization Approach to International Portfolio Diversification: Evidence from the U.S. Mutual Fund Families

Although the lack of international portfolio diversification has long interested the financial economics literature, the role of financial intermediaries in the market for diversified portfolios has rarely been studied. In this paper, I introduce a microeconomic aspect of under-diversification by examining a new data on U.S.-based mutual fund families' global diversification. I document the fund families' investments in global equity markets and explore features of supply and demand in the mutual fund market to explain their limited global diversification. Demand estimation confirms that ...
Finance and Economics Discussion Series , Paper 2014-78

Working Paper
It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) plans

This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own funds. Using a hand-collected dataset on retirement investment options, we show that poorly-performing funds are less likely to be removed from and more likely to be added to a 401(k) menu if they are affiliated with the plan trustee. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, the subsequent performance of poorly-performing affiliated funds indicates that these trustee decisions are not ...
Finance and Economics Discussion Series , Paper 2014-96

Working Paper
Bayesian Nonparametric Learning of How Skill Is Distributed across the Mutual Fund Industry

In this paper, we use Bayesian nonparametric learning to estimate the skill of actively managed mutual funds and also to estimate the population distribution for this skill. A nonparametric hierarchical prior, where the hyperprior distribution is unknown and modeled with a Dirichlet process prior, is used for the skill parameter, with its posterior predictive distribution being an estimate of the population distribution. Our nonparametric approach is equivalent to an infinitely ordered mixture of normals where we resolve the uncertainty in the mixture order by partitioning the funds into ...
FRB Atlanta Working Paper , Paper 2019-3

Discussion Paper
Redemption Risk of Bond Mutual Funds and Dealer Positioning

Market participants have recently voiced concerns that bond markets seem to become illiquid precisely when they want to sell bonds. Some possible reasons for a decline in corporate bond market liquidity in times of stress include the increasing share of corporate bond ownership by mutual funds and the reduced share of corporate bond ownership by dealers. In this post, we examine the potential effects of outflows from bond mutual funds and the role of dealers? positioning in corporate bonds.
Liberty Street Economics , Paper 20151008

Working Paper
The Shift from Active to Passive Investing: Potential Risks to Financial Stability?

The past couple of decades have seen a significant shift in assets from active to passive investment strategies. We examine the potential effects of this shift on financial stability through four different channels: (1) effects on investment funds? liquidity transformation and redemption risks; (2) passive strategies that amplify market volatility; (3) increases in asset-management industry concentration; and (4) the effects on valuations, volatility, and comovement of assets that are included in indexes. Overall, the shift from active to passive investment strategies appears to be increasing ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-4

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