57 Pages Posted: 16 Mar 2010 Last revised: 27 Sep 2016
Date Written: July 5, 2016
We investigate whether mutual funds whose investors and stocks are decoupled (i.e., investor location does not coincide with that of the stock holdings) benefit from a natural hedge as they have fewer outflows during market downturns and fewer inflows during upturns. Using a sample of equity mutual funds from 26 countries, we find that funds with higher investor-stock decoupling exhibit higher performance and this is more pronounced during the 2007-2008 financial crisis. We also find that decoupling allows fund managers to take less risk, be more active, and tilt their portfolios toward smaller and less liquid stocks.
Keywords: Mutual funds, Performance, Fund flows, Risk taking, Limits of arbitrage
JEL Classification: G23, G30, G32
Suggested Citation: Suggested Citation
Ferreira, Miguel A. and Massa, Massimo and Matos, Pedro P., Investor-Stock Decoupling in Mutual Funds (July 5, 2016). AFA 2013 San Diego Meetings Paper; Marshall School of Business Working Paper No. FBE 07-10. Available at SSRN: https://ssrn.com/abstract=1571838 or http://dx.doi.org/10.2139/ssrn.1571838