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Director of Research, Federal Reserve

By Peter Fortune, Richard Kopcke and Lynn Browne For

Abstract

constructive comments, and Kathryn Cosgrove for her able research assistance. This study is the second in a two-part analysis of the mutual fund industry. The first part (Fortune 1997, referred to here as “Part I”) examined the basic structure of the industry and discussed the historical relationship between mutual fund flows and returns on both short-term and long-term financial instruments. That study ended with a discussion of the role that momentum investing by mutual fund shareholders—buying in rising markets, selling in declines—might play in destabilizing financial markets. This study begins where Part I ended. The goal is to assess the historical evidence to see whether the interactions between mutual fund inflows, redemptions, and security prices are potentially destabilizing. Any analysis of the effect of mutual funds on financial stability should, in principle, be a comparative analysis in which performance o

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.198.3532
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