Investor-Stock Decoupling in Mutual Funds
Miguel A. Ferreira
Nova School of Business and Economics; European Corporate Governance Institute (ECGI)
INSEAD - Finance
Pedro P. Matos
University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)
September 29, 2013
AFA 2013 San Diego Meetings Paper
Marshall School of Business Working Paper No. FBE 07-10
We investigate whether mutual funds whose investors and stocks are decoupled (i.e., investor location does not coincide with that of the stock holdings) benefit from a natural hedge as they have fewer outflows during market downturns and fewer inflows during market upturns. Using a comprehensive sample of equity mutual funds from 26 countries, we find that funds experiencing a higher investor-stock decoupling (ISD) exhibit a higher performance. This association is more pronounced during the 2007-2008 financial crisis, and we provide evidence that funds with decoupled investors avoid asset-fire sales in adverse market conditions. We also find that fund ISD allows fund managers to take less risk, be more active, and tilt their portfolios toward smaller and less liquid stocks. Overall, we conclude that investor-stock decoupling alleviates limits to arbitrage in delegated fund management.
Number of Pages in PDF File: 51
Keywords: Mutual funds, Performance, Fund flows, Risk taking, Limits of arbitrage
JEL Classification: G23, G30, G32
Date posted: March 16, 2010 ; Last revised: September 30, 2013
© 2015 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.360 seconds