Investor Cash Flow and Mutual Fund Behavior

16 Pages Posted: 27 Dec 2014

See all articles by Xiangbo Liu

Xiangbo Liu

Renmin University of China

Zijun Liu

Bank of England

Zhigang Qiu

School of Finance, Renmin University of China

Date Written: January 2015

Abstract

We study the behavior of a mutual fund manager in a discrete‐time model, in which new investors may choose to invest in the fund after the fund manager has made trading decisions. We show that under certain conditions the fund manager may choose to buy overvalued assets at the expense of the investors in order to attract new investments, who would otherwise not invest in the fund. This can potentially lead to higher risky asset prices and a higher‐than‐optimal proportion of investment in risky assets in the active fund management industry.

Suggested Citation

Liu, Xiangbo and Liu, Zijun and Qiu, Zhigang, Investor Cash Flow and Mutual Fund Behavior (January 2015). The Manchester School, Vol. 83, Issue 1, pp. 56-71, 2015, Available at SSRN: https://ssrn.com/abstract=2543024 or http://dx.doi.org/10.1111/manc.12053

Xiangbo Liu (Contact Author)

Renmin University of China ( email )

Zijun Liu

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Zhigang Qiu

School of Finance, Renmin University of China ( email )

Room 308
Mingde Main Building, Renmin University of China
Beijing, Beijing 100872
China

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