Sentimental Mutual Fund Flows
56 Pages Posted: 27 Oct 2013 Last revised: 21 Jun 2019
Date Written: June 20, 2019
Abstract
We show that many stylized empirical patterns for mutual fund flows are driven by investor sentiment. Specifically, when sentiment is high, investors exhibit a stronger tendency of chasing past fund performance; fund flows are less sensitive to fund expenses; and investors are attracted more to funds with sheer visibility. Moreover, the well-documented positive relation between fund flows and future fund performance is significant only during high sentiment periods and is mainly driven by expected component of fund flows. Finally, we show that mutual fund investors exhibit a significantly negative timing ability at the individual fund level when sentiment is high.
Keywords: Mutual fund flows; Investor sentiment; Fund performance; Fund expenses; Fund visibility; Flow-performance relation; Investor timing ability
JEL Classification: G11, G02, G23
Suggested Citation: Suggested Citation