Investor Timing and Fund Distribution Channels

27 Pages Posted: 12 Dec 2007 Last revised: 17 Feb 2010

See all articles by Mercer Bullard

Mercer Bullard

University of Mississippi - School of Law

Geoffrey C. Friesen

University of Nebraska at Lincoln - Department of Finance

Travis Sapp

Iowa State University - Department of Finance

Date Written: June 1, 2008

Abstract

This study examines the investment timing performance of equity mutual fund investors and its relationship to the distribution arrangement of the fund. We find that investors who transact through investment professionals using conventional distribution arrangements experience substantially poorer timing performance than investors who purchase pure no-load funds. Investors in all three principal load-carrying retail share classes (A, B, and C) significantly underperform a buy-and-hold strategy. Among all load funds, Class B investors suffer from the poorest cash flow timing, underperforming a buy-and-hold strategy by 2.28% annually, compared with annual underperformance of 0.78% for investors in pure no-load funds. No-load index funds are the only funds found to show no evidence of poor investor timing. We discuss several potential explanations for the poorer timing performance of investors in load funds, such as broker incentives, fund advertising, and investor return-chasing behavior.

Keywords: Mutual fund performance, fund cash flows, investor timing, fund share classes

JEL Classification: G11, G20

Suggested Citation

Bullard, Mercer and Friesen, Geoffrey C. and Sapp, Travis, Investor Timing and Fund Distribution Channels (June 1, 2008). Available at SSRN: https://ssrn.com/abstract=1070545 or http://dx.doi.org/10.2139/ssrn.1070545

Mercer Bullard

University of Mississippi - School of Law ( email )

Lamar Law Center
P.O. Box 1848
University, MS 38677
United States

Geoffrey C. Friesen

University of Nebraska at Lincoln - Department of Finance ( email )

Department of Finance
Lincoln, NE 68588-0489
United States
402-472-2334 (Phone)

Travis Sapp (Contact Author)

Iowa State University - Department of Finance ( email )

3362 Gerdin Business Bldg.
Ames, IA 50011-1350
United States
515-294-2717 (Phone)
515-294-3525 (Fax)

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