Mutual Fund Risk and Market Share Adjusted Fund Flows

48 Pages Posted: 22 Sep 2010 Last revised: 31 Oct 2014

See all articles by Matthew I. Spiegel

Matthew I. Spiegel

Yale University - Yale School of Management, International Center for Finance

Hong Zhang

Tsinghua University - PBC School of Finance

Date Written: September 15, 2010

Abstract

Multiple studies have examined the relationship between performance and subsequent fund flows. Prior work takes a fund’s dollar flows divided by its assets under management as the dependent variable. However, individual fund flows have to add up to the aggregate flow in every period. If aggregate flows are high, then on average individual flows will be so, and vice-versa. To accommodate this accounting identity, this paper uses market share as the dependent variable. Unlike percentage flows, market shares always add to the aggregate value: one. With market shares as the focus, the conclusion drawn here is that adding volatility to a fund’s return process does not increase a firm’s funds under management. Thus, contrary to some prior conclusions, this paper does not find support for the idea that fund flows provide managers with an incentive to engage in additional risk taking.

Keywords: mutual funds, fund flows, fund returns

JEL Classification: G11, G12, G20, G23

Suggested Citation

Spiegel, Matthew I. and Zhang, Hong, Mutual Fund Risk and Market Share Adjusted Fund Flows (September 15, 2010). Journal of Financial Economics (JFE), Vol. 108, No. 2, 2013. Available at SSRN: https://ssrn.com/abstract=1680565 or http://dx.doi.org/10.2139/ssrn.1680565

Matthew I. Spiegel (Contact Author)

Yale University - Yale School of Management, International Center for Finance ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-6017 (Phone)
203-432-8931 (Fax)

HOME PAGE: http://som.yale.edu/~spiegel

Hong Zhang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

HOME PAGE: http://eng.pbcsf.tsinghua.edu.cn/content/details167_7995_x.html

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