Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/125114 
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper No. 15-113/VI
Publisher: 
Tinbergen Institute, Amsterdam and Rotterdam
Abstract: 
I analyze welfare properties of mutual funds in the Diamond-Dybvig model with two sources of aggregate risk: undiversifiable interest rate risk and shocks to aggregate liquidity demand. Mutual funds are inefficient when the economy faces undiversifiable interest rate risk. However, if only aggregate liquidity demand is stochastic, mutual funds can implement the social optimum even when liquidity demand is not directly observed.
Subjects: 
Mutual funds
equity contracts
liquidity creation
liquidity insurance
aggregate risk
JEL: 
D91
E61
G21
G23
G28
Document Type: 
Working Paper

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