Understanding the Non-Linear Relation between Mutual Fund Performance and Flows

45 Pages Posted: 20 Mar 2008

See all articles by George D. Cashman

George D. Cashman

Marquette University; Texas Tech University

Daniel Deli

Securities and Exchange Commission (SEC)

Federico Nardari

University of Melbourne - Department of Finance

Sriram V. Villupuram

University of Texas at Arlington - Department of Finance and Real Estate

Date Written: December 28, 2008

Abstract

We examine gross flows to mutual funds and find that existing investors punish poorly performing funds by increasing outflows. We also find that existing and potential investors punish poorly performing funds by reducing inflows. Finally, we uncover that current investors respond to poor performance with the same intensity as they do to good performance. Overall, we conclude that new investors must drive the observed non-linearity between mutual fund performance and net flows. This conclusion runs contrary to the extant literature which generally ascribes the absence of net outflows in the face of poor performance to inactivity by existing fund investors (i.e., they do not exit).

Keywords: Mutual Funds, Performance-Flow Relation, Mutual Fund Flows

JEL Classification: G23, L14

Suggested Citation

Cashman, George D. and Deli, Daniel and Nardari, Federico and Villupuram, Sriram V., Understanding the Non-Linear Relation between Mutual Fund Performance and Flows (December 28, 2008). Available at SSRN: https://ssrn.com/abstract=1108667 or http://dx.doi.org/10.2139/ssrn.1108667

George D. Cashman

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States
4142881448 (Phone)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Daniel Deli

Securities and Exchange Commission (SEC)

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Federico Nardari (Contact Author)

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Sriram V. Villupuram

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States

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