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A Self-Exciting Model for Mutual Fund Flows: Investor Behaviour and Liability Risk

Darolles, Serge; Le Fol, Gaëlle; Lu, Yang; Sun, Ran (2018), A Self-Exciting Model for Mutual Fund Flows: Investor Behaviour and Liability Risk, AFFI, 2018-05, Paris, France

Type
Communication / Conférence
Date
2018
Conference title
AFFI
Conference date
2018-05
Conference city
Paris
Conference country
France
Metadata
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Author(s)
Darolles, Serge
Dauphine Recherches en Management [DRM]
Le Fol, Gaëlle
Dauphine Recherches en Management [DRM]
Lu, Yang cc
CEntre de REcherches en MAthématiques de la DEcision [CEREMADE]
Sun, Ran
Dauphine Recherches en Management [DRM]
Abstract (EN)
This paper analyses the purchase and redemption behaviour of mutual fund investors and its implications on fund liquidity risk. We collect a novel set of proprietary data which contains a large number of French investors holding funds with various degrees of asset liquidity. We build a Self-Exciting Poisson model capturing fund flows' clustering effects and over-dispersion. The model improves the forecast accuracy of future flows and provides a reliable risk indicator (Flow Value at Risk.) Accordingly, we introduce the notion of liability risk where investor's behaviour increases mutual fund liquidity risk. We further decompose fund flows into investor categories. We find that investors exhibit high heterogeneous behaviour, and a lead-lag relation exists between them. Finally, we control flow dynamics for various economic conditions. We show that although flows evolve with economic conditions, investor's behaviour stays the main significant determinant of flows' randomness. Our findings encourage fund manager to adopt an ALM approach.
Subjects / Keywords
Financial Econometrics; Hedge Funds/Mutual Funds; Market Microstructure/Liquidity
JEL
C55 - Large Data Sets: Modeling and Analysis
C58 - Financial Econometrics
G11 - Portfolio Choice; Investment Decisions
G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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