Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123286
Authors: 
Stahmer, Axel
Year of Publication: 
2015
Series/Report no.: 
ESMT Working Paper 15-04
Abstract: 
This paper studies the effect of new fund flows on investment behavior and the resulting equilibrium price of risk. The Small Fund Industry model shows equilibria with overinvestment in unprofitable and underinvestment in profitable investment opportunities. The Large Fund Industry model derives market prices for risk and analyzes the resulting price distortions in equilibrium. New flow of funds to the asset management industry lead to inefficient investment decisions, mispricing of risk, and distortion of market implied probabilities. Furthermore, the paper provides an explanation for partial market failure and trade among identical asset managers without assuming heterogeneous beliefs.
Subjects: 
asset pricing
mutual funds
flow of funds
mispricing
misallocation of capital
overinvestment
underinvestment
investment decision
implied probabilites
JEL: 
D53
D80
G01
G02
G11
G12
G20
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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