Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/250749 
Year of Publication: 
2022
Series/Report no.: 
CFR Working Paper No. 22-02
Publisher: 
University of Cologne, Centre for Financial Research (CFR), Cologne
Abstract: 
We exploit the staggered introduction of index funds in different segments and countries to study how increased competition from indexing affects the performance-flow relation and incentives of actively managed equity mutual funds. An increase in the market shares of available country-level index funds in active fund benchmarks is associated with a significantly lower sensitivity of flows to past performance and with a shift from a convex performance-flow relation towards a more linear relation. The increased competition from index funds is also associated with a higher fund performance-liquidation sensitivity, suggesting real economic consequences for active fund managers and fund management companies.
Subjects: 
performance-flow relation
performance-liquidation sensitivity
mutual funds
active management
passive management
competition
JEL: 
G11
G23
G41
Document Type: 
Working Paper

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