We develop a model of the feedback between mutual fund outflows and asset illiquidity. Following a market shock, alert investors anticipate the impact on a fund's net asset value (NAV) of other investors' redemptions and exit first at favorable prices. This first-mover advantage may lead to fund...

We study the portfolio selection problem of banks which account for fire-sale spillovers. Our analysis highlights the fundamental trade-off between diversification at the individual and systemic level. While sacrificing individual diversification benefits to reduce portfolio commonality...

We develop a framework to quantify the vulnerability of mutual funds to fire-sale spillover losses. We account for the first-mover incentive that results from the mismatch between the liquidity offered to redeeming investors and the liquidity of assets held by the funds. In our framework, the...

Open-end mutual funds offer investors same-day liquidity while holding assets that in some cases take several days to sell. This liquidity transformation creates a potentially destabilizing first-mover advantage: when asset prices fall, investors who exit a fund earlier may pass the liquidation...