Mutual Funds’ Portfolio Rebalancing and Heterogeneous Decisions: A Worldwide Analysis Exploiting the Impact of the COVID-19 Shock

This paper performs a comprehensive analysis of mutual funds’ (MF) portfolio decisions taking advantage of the COVID-19 outbreak and a granular database of 12 million observations on fundby-fund and security-by-security purchases and sales of 20,000 MFs. These advantages allow us to apply an identification strategy that controls for all other unobservable characteristics thatcould influence MFs’ behaviour. Our results show that MFs divested from assets considered most at risk, and increased divestment in response to outflows from their unitholders. We also revealseveral dimensions of heterogeneity, as well as the existence of an unconventional monetary policy channel acting through MFs.