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Monthly savings plans in stocks or funds are typical investments for many people. On aggregate, these plans generate a large demand on the underlying assets, often around the end/beginning of a month.

How do banks or fund managers handle these investments?

I assume two strategies, wich both seems to have problems:

  1. As monthly savings plans are often due at the end of the month, a financial institution buys the underlying assets within the first days of a month. This demand would drive stock prices at the beginning of a month, but this effect is not observable in empirical research.
  2. Financial institutions spread the buying of underlying assets. Therefore, they bear market-risk, as the claim of monthly savers on these assets is not covered by the bank/fund by actually holding these assets. I know, that this risk can be managed, but on aggregate, not all institutions can hedge their offered investment plans without holding any underlying asset.
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  • $\begingroup$ According to this working paper there is an end-of-month effect. For every 10 papers that prove something, you can always find 10 other papers that prove the opposite. $\endgroup$
    – M3RS
    Sep 20 '17 at 14:53
  • $\begingroup$ @Andras that link is paywalled. Can you provide a free one? Maybe the link to the actual paper? $\endgroup$
    – luchonacho
    Sep 25 '17 at 13:23
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    $\begingroup$ The paper Andras mentioned is here: research.mbs.ac.uk/accounting-finance/Portals/0/docs/… $\endgroup$
    – Ubiquitous
    Sep 25 '17 at 21:55

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