Momentum Investors in Disguise
Why didn't the large mutual funds use their buying power with the investment banks to protect, rather than endanger, retail customers? They certainly have the power. Single large mutual funds can shut down the trading floor of a major investment bank by ceasing to buy for a time. But there is no evidence that mutual funds used their power to defend investors—they used it only to increase the fund's allocation of hot IPO shares.
In effect, mutual funds mimicked the behavior of venture firms. They recognized that investment banks, pushed by venture firms, were taking companies public at a very early stage. Companies were coming to market with no track record, no profitability, and mutual fund managers knew this—they're ...
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