Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds

Posted: 29 Feb 2008

See all articles by Gordon J. Alexander

Gordon J. Alexander

University of Minnesota - Twin Cities - Carlson School of Management

Gjergji Cici

University of Kansas - School of Business

Scott Gibson

Arizona State University (ASU)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2007

Abstract

We relate the performance of mutual fund trades to their motivation. A fund manager who buys stocks when there are heavy investor outflows is likely to be motivated by the belief that the stocks are significantly undervalued. In contrast, when there are heavy inflows, the manager is likely to be motivated to work off excess liquidity by buying stocks. Our analysis reveals that managers making purely valuation-motivated purchases substantially beat the market but are unable to do so when compelled to invest excess cash from investor inflows. A similar, but weaker, pattern is found for stocks that are sold. (JEL G11, G29)

Suggested Citation

Alexander, Gordon J. and Cici, Gjergji and Gibson, Scott, Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds (January 2007). The Review of Financial Studies, Vol. 20, Issue 1, pp. 125-150, 2007, Available at SSRN: https://ssrn.com/abstract=1093507 or http://dx.doi.org/10.1093/rfs/hhl008

Gordon J. Alexander (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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Gjergji Cici

University of Kansas - School of Business ( email )

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HOME PAGE: http://business.ku.edu/gjergji-cici

Scott Gibson

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

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