New Research Shows “First-Mover” Is a Universal Investor Response — Not Unique to Open-End Mutual Funds

Some academics and policymakers argue that bond mutual funds can be systemically risky because the open-end fund structure itself might incentivize fund investors to redeem ahead of others or create a “first-mover advantage.”

In contrast, new ICI research argues and presents evidence consistent with a more fundamental and widespread incentive at the asset market level where all investors in an asset—whether direct or indirect via mutual fund shares—may seek to sell if they expect others to sell the same asset and thereby temporarily reduce its price and deplete its market liquidity.

These new results have important policy implications. First, any assessment of first-mover advantage that focuses entirely on open-end funds is unduly narrow and misses broader market realities. Second, regulations seeking to limit the ability of open-end fund investors to redeem, while ignoring the behavior of direct investors, will likely be ineffective in mitigating any related risks and certainly inefficient.

Join ICI on May 18 at 9:30 a.m. ET to discuss this new research and investor behavior more broadly. This program will bring together Christof Stahel PhD, Senior Economist, ICI, and a panel of top academics to discuss the new findings and their policy implications.