Investor Attrition and Fund Flows in Mutual Funds
42 Pages Posted: 29 Mar 2014 Last revised: 11 May 2015
Date Written: May 9, 2015
We explore the properties of equity mutual funds that experience a loss of assets after poor performance. We document that both inflows and outflows are less sensitive to performance because performance-sensitive investors leave or decide not to invest after bad performance. Consistent with the idea that attrition measures the sorting of performance-sensitive investors, we find that attrition has less of an impact on the fund’s flow-performance sensitivity for institutional funds where there is less dispersion in investor performance- sensitivity. Also attrition has no effect on the flow-performance sensitivity when attrition arises after good performance or investors invest for non-performance reasons.
Keywords: Flow-performance relation, mutual funds, attrition
JEL Classification: G11, G23
Suggested Citation: Suggested Citation