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Risk and Fund FlowsChristopher P. CliffordUniversity of Kentucky Jon A. FulkersonLoyola University Maryland - Sellinger School of Business & Management Bradford D. JordanUniversity of Kentucky - Gatton College of Business and Economics Steve WaldmanUniversity of Kentucky - Gatton College of Business and Economics December 11, 2012 Abstract: We study the impact of risk on mutual fund flows. Consistent with prior literature, we find evidence that netflows show aversion to risk. Using an extensive panel of gross flows, however, we show that inflows and outflows are both strongly and positively related to risk, a heretofore unknown behavior. While this result appears rational for outflows, it appears anomalous for inflows. We find that inflows are positively related to idiosyncratic risk, rather than systematic risk, and that institutional investors and incumbent investors are less susceptible to this behavior. Our results are consistent with a growing body of evidence that finds groups of investors making sub-optimal investment decisions.
Number of Pages in PDF File: 47 Keywords: Mutual Fund Flows working papers seriesDate posted: February 1, 2011 ; Last revised: December 20, 2012Suggested CitationContact Information
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