Crowding of International Mutual Funds

Tanja Artiga Gonzalez, Teodor Dyakov, Justus Inhoffen and Evert Wipplinger

No 1937, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: We study the relationship between crowding and performance in the active mutual fund industry. We construct a fund-specific measure of crowding using the equity holdings overlap of 17,364 global funds. Funds in the top decile of crowding underperform passive benchmark funds by 1.4% per year. The impact of crowding on performance cannot be attributed to diseconomies of scale. We explore several mechanisms: a preference for liquid stocks, externalities of peer fund flows, and a coordination problem. We find strongest support for a preference for liquid stocks. Our findings reveal that the tendency of managers to follow correlated strategies is a major concern for fund investors.

Keywords: Mutual funds; crowding; diseconomies of scale (search for similar items in EconPapers)
JEL-codes: G15 G23 (search for similar items in EconPapers)
Pages: 59 p.
Date: 2021
New Economics Papers: this item is included in nep-cwa and nep-fmk
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Journal Article: Crowding of international mutual funds (2024)
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