Beyond the surface: investor base, risk-taking and fragility in open-end funds

Valerio Della Corte (), Raffaele Gallo (), Taneli Makinen () and Francesco Palazzo ()
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Valerio Della Corte: Bank of Italy
Raffaele Gallo: Bank of Italy
Taneli Makinen: International Monetary Fund
Francesco Palazzo: Bank of Italy

No 1546, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We study how the composition of a fund's investor base shapes its response to a liquidity shock affecting its liabilities rather than its portfolio. In May 2018, capital losses on Italian sovereign bonds prompted large-scale redemptions by Italian insurers from European bond funds holding almost no Italian assets. Funds with more long-term investors replaced them with other euro-area insurers and pension funds, keeping flows and portfolios stable. Funds dominated by short-term investors suffered outflows and increased their exposure to high-yield bonds to attract performance-sensitive investors, reversing the usual precautionary de-risking strategy. Investor composition may therefore shape the effects of liability-side shocks, concentrating run-prone investors and risky assets in the same funds.

Keywords: fund liquidity risk; investor composition; insurance companies; capital regulation (search for similar items in EconPapers)
JEL-codes: G11 G22 G23 (search for similar items in EconPapers)
Date: 2026-10
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