Download This PaperMutual Fund Flows at Long Horizons
79 Pages Posted: 28 Apr 2023 Last revised: 25 May 2026
Date Written: April 01, 2023
Abstract
We show that positive flows to active mutual funds with high recent returns are partially reversed at longer horizons. This outcome is robust across a broad range of alternative specifications. The reversal is due to greater outflows associated with high prior returns, not reduced inflows. We test theories with potential to explain the reversal: investment lifecycles, tax loss selling, and a behavioral “disappointment” hypothesis based on investors’ overreaction to positive returns. While tax loss selling and short investor lifecycles can both contribute, the evidence supports a role for investor disappointment, whereby investors redeem when return performance fails to meet expectations.
Keywords: Fund flow, Fund Return, Disappointment
JEL Classification: G10, G23
Suggested Citation: Suggested Citation
Shuaiyu Chen
University of Virginia - Darden School of Business ( email )
P.O. Box 6550
Charlottesville, VA 22906-6550
United States
HOME PAGE: http://www.shuaiyuchen.com/
Jinming Xue (Contact Author)
Southern Methodist University (SMU) - Finance Department ( email )
United States
(214)-768-4181 (Phone)
HOME PAGE: http://sites.google.com/view/jinming-xue
Feng Zhang
Southern Methodist University (SMU) - Finance Department ( email )
SMU Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States
HOME PAGE: http://https://sites.google.com/view/fengzhangfin