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We show substantial variation in mutual funds' use of Treasury futures, both over time and across funds. This variation from mutual funds drives much of the time series variation in aggregate Treasury futures open interest, including over 60% of the recent rise in Treasury futures positions. We provide evidence these Treasury futures positions are largely attributable to mutual funds "reaching for duration" in order to track the duration of a benchmark index with high cash Treasury exposure. Specifically, we show mutual funds use futures to fill the gap between their portfolio and the index that results when they tilt their cash positions toward higher return but lower duration assets, such as mortgage-backed securities and equities, and away from cash Treasuries. Treasury futures positions are more common in mutual funds which indicate a focus on dual objectives of duration management and total return whose style has a higher allocation to Treasuries. Reaching for duration allows funds to track their index better at lower cost, but increases leverage in the Treasury market both through mutual funds long Treasury futures positions and through the leverage of hedge funds who take the corresponding short positions in Treasury futures. [ABSTRACT FROM AUTHOR]

Sharpe et al. proposed the idea of having an expected utility maximizer choose a probability distribution for future wealth as an input to her investment problem instead of a utility function. They developed a computer program, called The Distribution Builder, as one way to elicit such a distribution. In a single-period model, they then showed how this desired distribution for terminal wealth can be used to infer the investor's risk preferences. We adapt their idea, namely that a risk-averse investor can choose a desired distribution for future wealth as an alternative input attribute for investment decisions, to continuous time. In a variety of scenarios, we show how the investor's desired distribution combines with her initial wealth and market-related input to determine the feasibility of her distribution, her implied risk preferences, and her optimal policies throughout her investment horizon. We then provide several examples., Comment: 42 pages, 1 figure

We show that when only a few investors own a substantial portion of a hedge fund's net asset value, ow volatility increases because investors' exogenous, idiosyncratic liquidity shocks are not diversified away. Using confidential regulatory filings, we confirm that high investor concentration hedge funds experience more volatile ows. These hedge funds hold more cash and liquid assets, which help absorb large, unexpected outows. Such funds have to pay a liquidity premium and generate lower risk-adjusted returns. Investor concentration does not affect ow-performance sensitivity. These results are robust to including lock-up and redemption periods, strategy, manager ownership, and other controls. [ABSTRACT FROM AUTHOR]