The Flow-Performance Relationship Around the World

58 Pages Posted: 22 Mar 2009 Last revised: 21 Sep 2010

See all articles by Miguel A. Ferreira

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Aneel Keswani

Faculty of Finance, Cass Business School, City University, London

Antonio F. Miguel

Instituto Universitário de Lisboa (ISCTE - IUL)

Sofia Brito Ramos

ESSEC

Date Written: September 17, 2010

Abstract

We use a new dataset to study how mutual fund flows depend on past performance across 28 countries. We find that flows are convex with past performance, creating an incentive for managers to take excessive risk. The flow-performance convexity is less pronounced in countries with higher levels of economic, financial, and mutual fund industry development. This is because mutual fund investors in developed countries are more sophisticated and face lower costs of participating in the mutual fund industry. Higher country-level convexity is positively associated with higher levels of risk taking by fund managers.

Keywords: Mutual funds, Flow-performance relationship, Mutual fund flows, Convexity

JEL Classification: G15, G23

Suggested Citation

Ferreira, Miguel Almeida and Keswani, Aneel and Miguel, Antonio Freitas and Ramos, Sofia Brito, The Flow-Performance Relationship Around the World (September 17, 2010). Available at SSRN: https://ssrn.com/abstract=1364062 or http://dx.doi.org/10.2139/ssrn.1364062

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Aneel Keswani

Faculty of Finance, Cass Business School, City University, London ( email )

106 Bunhill Row
London EC1Y 8TZ
Great Britain
+44 207 040 8763 (Phone)

Antonio Freitas Miguel (Contact Author)

Instituto Universitário de Lisboa (ISCTE - IUL) ( email )

Av. das Forcas Armadas
Lisboa, 1649-026
Portugal
+351 217 903 000 (Phone)

Sofia Brito Ramos

ESSEC ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

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