Fund flows and asset prices: a baseline model

Vayanos, Dimitri ORCID: 0000-0002-0944-4914 and Woolley, Paul (2011) Fund flows and asset prices: a baseline model. Financial Markets Group Discussion Papers (667). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We study flows between investment funds and their effects on asset prices in a simple twoperiod version of Vayanos and Woolley (2010, VW). As in VW, flows cause assets to comove in ways unrelated to fundamentals, affect assets with high idiosyncratic risk the most, and raise the expected returns of funds experiencing outflows. We sketch how adding periods can generate other results of VW such as momentum, reversal, amplification, and commercial-risk management. We also extend the VW framework to study how index redefinitions affect the price level and the extent of comovement. This is a revised version of Working Paper Series No 15, FMG Discussion Paper No 662.

Item Type:	Monograph (Working Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2011 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G1 - General Financial Markets > G10 - General G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
Date Deposited:	01 Nov 2010 12:50
Last Modified:	11 Dec 2024 19:00
URI:	http://eprints.lse.ac.uk/id/eprint/29784

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