Wall Street Wisdom on Who Sells in a Market Crisis Gets Debunked
- Columbia, ECB researchers explored investor types and outflows
- Other funds ‘amplify and trigger widespread redemptions’
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Who is most likely to ditch a mutual fund when a crisis hits? If you assumed it’s flighty retail investors or cash-hungry corporations, the latest research suggests you’re wrong.
The investor type most prone to “runs” – frantic selling at a time of market stress – is the fund sector itself, a team of academics from Columbia Business School and the European Central Bank has discovered. They analyzed the trading dynamics of euro-area funds during the Covid-sparked turmoil of 2020, and identified substantially higher outflows in share classes more heavily owned by other funds.