Arbeitspapier

Fund flows inducing mispricing of risk in competitive financial markets

This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The Small Fund Industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The Large Fund Industry model derives market prices for risk and analyzes the resulting price distortions in equilibrium. New flow of funds to the asset management industry lead to inefficient investment decisions, mispricing of risk, and distortion of market implied probabilities. Furthermore, the paper provides an explanation for partial market failure and trade among identical asset managers without assuming heterogeneous beliefs.

Sprache
Englisch

Erschienen in
Series: ESMT Working Paper ; No. 15-04

Klassifikation
Management
General Equilibrium and Disequilibrium: Financial Markets
Information, Knowledge, and Uncertainty: General
Financial Crises
Portfolio Choice; Investment Decisions
Asset Pricing; Trading Volume; Bond Interest Rates
Financial Institutions and Services: General
Thema
asset pricing
mutual funds
flow of funds
mispricing
misallocation of capital
overinvestment
underinvestment
investment decision
implied probabilites

Ereignis
Geistige Schöpfung
(wer)
Stahmer, Axel
Ereignis
Veröffentlichung
(wer)
European School of Management and Technology (ESMT)
(wo)
Berlin
(wann)
2015

Handle
URN
urn:nbn:de:101:1-201511278117
Letzte Aktualisierung
10.03.2025, 11:43 MEZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Stahmer, Axel
  • European School of Management and Technology (ESMT)

Entstanden

  • 2015

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