Fund flows and asset prices: a baseline model

Dimitri Vayanos and Paul Woolley

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study flows between investment funds and their effects on asset prices in a simple twoperiod version of Vayanos and Woolley (2010, VW). As in VW, flows cause assets to comove in ways unrelated to fundamentals, affect assets with high idiosyncratic risk the most, and raise the expected returns of funds experiencing outflows. We sketch how adding periods can generate other results of VW such as momentum, reversal, amplification, and commercial-risk management. We also extend the VW framework to study how index redefinitions affect the price level and the extent of comovement. This is a revised version of Working Paper Series No 15, FMG Discussion Paper No 662.

JEL-codes: G10 G12 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2011-01-03
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http://eprints.lse.ac.uk/29784/ Open access version. (application/pdf)

Related works:
Working Paper: Fund Flows and Asset Prices: A Baseline Model (2011)
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