Uncertainty Avoidance and Mutual Funds

74 Pages Posted: 16 Jul 2016 Last revised: 22 Jul 2020

See all articles by Aneel Keswani

Aneel Keswani

Faculty of Finance, Cass Business School, City University, London

Mamdouh Medhat

Dimensional Fund Advisors

Antonio F. Miguel

Instituto Universitário de Lisboa (ISCTE - IUL)

Sofia Brito Ramos

ESSEC

Date Written: April 22, 2020

Abstract

We study how culture influences mutual funds around the world. Uncertainty Avoidance (UA), which is related to ambiguity aversion, is negatively associated with flow-performance sensitivity, deviation from the fund benchmark, fund alpha, and the fraction of active management across the 25 countries in our sample. This is true even when controlling for an exhaustive set of fund- and country-level characteristics. We also find that a fund’s deviation from its benchmark is not only affected by the UA of its domicile country but also by the UA of its fund family’s country of origin. Our results highlight the importance of considering cultural characteristics, and UA in particular, when studying mutual funds across countries.

Keywords: Mutual funds; Culture; Uncertainty Avoidance; Fund flows; Ambiguity; Knightian Uncertainty

JEL Classification: G15, G23, G32

Suggested Citation

Keswani, Aneel and Medhat, Mamdouh and Miguel, Antonio Freitas and Ramos, Sofia Brito, Uncertainty Avoidance and Mutual Funds (April 22, 2020). Available at SSRN: https://ssrn.com/abstract=2810115 or http://dx.doi.org/10.2139/ssrn.2810115

Aneel Keswani

Faculty of Finance, Cass Business School, City University, London ( email )

106 Bunhill Row
London EC1Y 8TZ
Great Britain
+44 207 040 8763 (Phone)

Mamdouh Medhat

Dimensional Fund Advisors ( email )

6300 Bee Cave Road, Building One
Austin, TX 78746
United States

HOME PAGE: http://https://sites.google.com/site/mamdouhmedhatresearch/home

Antonio Freitas Miguel (Contact Author)

Instituto Universitário de Lisboa (ISCTE - IUL) ( email )

Av. das Forcas Armadas
Lisboa, 1649-026
Portugal
+351 217 903 000 (Phone)

Sofia Brito Ramos

ESSEC ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

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