We define benchmark drift based on changes in a fund's beta relative to its self-promoted benchmark, calculated from the portfolio holdings of both the fund and benchmark. Benchmark drift has a strong adverse impact on mutual fund flows, even when funds beat the benchmark. Moreover, controlling...

Insurance companies often follow highly correlated investment strategies. As major investors in corporate bonds, their investment commonalities subject investors to fire-sale risk when regulatory restrictions prompt widespread divestment of a bond following a rating downgrade. Reflective of...

We contend that the confluence of portfolio similarity and correlated liquidity shocks within mutual fund styles can exacerbate fund exposure to liquidity risk. We find that mutual funds mitigate such liquidity risk exposure by systematically reducing portfolio overlap with peer funds when their...

The literature suggests that while decentralized decision-making can allow for greater specialization in an organization, it heightens the cost of coordinating decisions. The mutual fund industry – in particular, sole- and team-managed balanced funds – provides an ideal setting to test the...

We contend that confluence of portfolio overlap and correlated liquidity shocks within mutual fund styles can exacerbate fund exposure to flow-driven liquidity risk. We show that funds mitigate such liquidity risk by reducing portfolio overlap with peer funds when their flows become more...