Investors Do Respond to Poor Mutual Fund Performance: Evidence from Inflows and Outflows
George D. Cashman
Texas Tech University
Daniel N. Deli
Arizona State University
University of Houston - Department of Finance
Sriram V. Villupuram
Arizona State University (ASU) - Finance Department
The non-linear relation between mutual fund performance and subsequent net flows is well documented in the mutual fund literature. The extant literature generally ascribes the absence of net outflows in the face of poor performance to inactivity by existing fund investors (i.e., they do not to exit). We examine monthly gross flows and find that existing investors do, in fact, respond to poor mutual fund performance. Specifically, existing investors punish poorly performing funds by increasing outflows. We also find that existing and potential investors punish poorly performing funds by reducing inflows to those funds. Finally, we document that current investors respond to poor performance with the same intensity as they do to good performance.
Number of Pages in PDF File: 38
Keywords: Mutual Funds, Performance-Flow Relation, Mutual Fund Flows
JEL Classification: G23, L14working papers series
Date posted: November 16, 2006
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