Risk and Fund Flows
50 Pages Posted: 1 Feb 2011 Last revised: 17 Jul 2013
Date Written: June 16, 2013
We study the impact of risk on mutual fund flows. Consistent with prior literature, we find evidence that net flows show aversion to risk. We show, however, that gross inflows and outflows are positively related to risk. While this result appears rational for outflows, it appears anomalous for inflows. We find that inflows are positively related to idiosyncratic risk, rather than systematic risk, and that institutional investors and incumbent investors are less susceptible to this behavior. Our results extend a growing body of evidence that finds certain investors making sub-optimal investment decisions, such as buying past winners, regardless of risk.
Keywords: Mutual Fund Flows
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