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:
- 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.
- 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.