This note illustrates a simple but important insight for financial investment. In a heterogeneous agent-based evolutionary finance market model with long-lived assets, markets are stable if clients of fundamental ('value') investment funds are more patient than clients of other funds

This paper develops a simple technique that controls for ldquo;false discoveries,rdquo; or mutual funds that exhibit significant alphas by luck alone. Our approach precisely separates funds into (1) unskilled, (2) zero-alpha, and (3) skilled funds, even with dependencies in cross-fund estimated...

This paper explores the incentives for mutual funds to trade with sibling funds affiliated with the same group. To this end, we construct a dataset of almost one million equity transactions and compare the pricing of trades crossed internally (cross-trades) with that of twin trades executed with...

Why do investors keep buying underperforming mutual funds? To address this issue, we develop a one-period principal-agent model with a representative investor and a fund manager in an asymmetric information framework. This model shows that the investors perception of the fund plays the key role...

This paper proposes a model of asset-market equilibrium with portfolio delegation and optimal fee contracts. Fund managers and investors strategically interact to determine funds' investment profiles, while they share portfolio risk through fee contracts. In equilibrium, their investment...

We show that mutual funds compete for climate-conscious investment flows. In April 2018, Morningstar introduced a climate-focused label for mutual funds. The release of the "Low Carbon Designation" induced reactions on both the demand and supply sides of the market. First, investors flocked to...

We examine international equity allocations at the fund level and show how different returns on the foreign and domestic proportion of portfolios determine rebalancing behavior and trigger capital flows. We document the heterogeneity of rebalancing across fund types, its greater intensity under...

Mutual funds must publish policies announcing how they generally vote on the different ballot items at the shareholder meetings of their portfolio firms. I manually collect 17,000 of these policies for a sample of 29 of the largest U.S. mutual fund families over 2006-2018. I find that voting...

There has been a long debate about whether speculators are stabilizing or not. We consider a model where speculators have a stabilizing role in normal times, but may also provoke large risk panics. The very feature that makes arbitrageurs liquidity providers in normal times, namely their...

We quantify the effects of financial regulation in a general equilibrium model with market microstructure. Fund managers trade stocks and bonds in an order-driven market, subject to transaction taxes and constraints on short-selling and leverage. Results are obtained on the equilibrium...