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Which Factors Matter to Investors? Evidence from Mutual Fund Flows

77 Pages Posted: 14 Mar 2014 Last revised: 16 Jun 2016

Brad M. Barber

University of California, Davis

Xing Huang

Michigan State University - Broad College of Business

Terrance Odean

University of California, Berkeley - Haas School of Business

Date Written: May 18, 2016

Abstract

When assessing a fund manager’s skill, sophisticated investors will consider all factors (priced and unpriced) that explain cross-sectional variation in fund performance. We investigate which factors investors attend to by analyzing mutual fund flows as a function of recent returns decomposed into alpha and factor-related returns. Surprisingly, investors attend most to market risk (beta) when evaluating funds and treat returns attributable to size, value, momentum, and industry factors as alpha. Using proxies for investor sophistication (wealth, distribution channels, and periods of high investor sentiment), we find that more sophisticated investors use more sophisticated benchmarks when evaluating fund performance.

Keywords: mutual fund flows, investor behavior

JEL Classification: G11, G12, G20, G23

Suggested Citation

Barber, Brad M. and Huang, Xing and Odean, Terrance, Which Factors Matter to Investors? Evidence from Mutual Fund Flows (May 18, 2016). Available at SSRN: https://ssrn.com/abstract=2408231 or http://dx.doi.org/10.2139/ssrn.2408231

Brad M. Barber (Contact Author)

University of California, Davis ( email )

Graduate School of Management
One Shields Avenue
Davis, CA 95616
United States
530-752-0512 (Phone)
530-752-2924 (Fax)

Xing Huang

Michigan State University - Broad College of Business ( email )

315 Eppley Center
Broad College of Business
East Lansing, MI 48824-1122
United States

Terrance Odean

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-6767 (Phone)
510-666-2561 (Fax)

HOME PAGE: http://www.haas.berkeley.edu/faculty/odean.html

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