Time-Varying Flow-Performance Sensitivity and Investor Sophistication
Sam Houston State University - College of Business Administration
David A. Rakowski
Southern Illinois University - Department of Finance
February 24, 2012
We examine how investment advisors guide the decision-making process of mutual fund investors by comparing the flow-performance sensitivity of no-load funds and the three main classes of load fund shares, conditional on the state of the market. We show that load investors are more sensitive to raw fund returns than are no-load investors, and that load investors display a stronger overall flow-performance relationship. Counterproductively, the asymmetric flow-performance relationship leads to stronger trend-chasing behavior following market increases when simulations show that such behavior would be more productive following market declines.
Number of Pages in PDF File: 35
Keywords: mutual funds, investment advisors, load fees, investor behavior
JEL Classification: G23, G11working papers series
Date posted: February 25, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.438 seconds