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48 Pages Posted: 2 Aug 2019 Last revised: 14 Jul 2021
Date Written: July 29, 2019
Abstract
Using identical periods and specifications, we compare investment flows to active mutual funds (AMFs), index mutual funds (IMFs), and exchange traded funds (ETFs). All dimensions of performance—vehicle, factor-related, benchmark, style, and skill—contribute to flow-performance sensitivity. A cross-section inclusive of all vehicles produces sensitivities up to three times larger than within vehicle sensitivities. Future abnormal returns are uncorrelated with flow and are similar across vehicles. Aggregate ETF market flows are negatively related to future market returns. Although our findings contradict many previous explanations, most reconcile with Berk and Green (2004) and to a lesser extent extrapolative expectations.
Keywords: Investment Flow, ETFs, Mutual Funds, Passive Investment
JEL Classification: G12, G14, G23
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