And, most notably, this forecasting effect is much stronger in the less liquid high-yield and emerging market categories than it is in U.S. Treasury securities; indeed, it is essentially nonexistent in the latter category. While not a decisive test, this pattern is consistent with one of the necessary preconditions for the existence of strategic complementarities and run-like dynamics.
Again, the key idea is that, when a fund’s assets are illiquid, outflows today are met in part with drawdowns from cash reserves, with the other assets being sold off more gradually over time – hence, the predictable downward pressure on prices going forward.