Investor Mix and Mutual Fund Performance: A Flow Based Measure of Relative Smartness

42 Pages Posted: 30 Oct 2019

See all articles by You Zhou

You Zhou

University of Leeds - Leeds University Business School (LUBS)

Peng Li

University of Leeds - Division of Accounting and Finance

Charlie X. Cai

University of Liverpool Management School

Kevin Keasey

University of Leeds - Division of Accounting and Finance

Date Written: September 16, 2019

Abstract

We study the information content of the mutual-fund investor mix at the fund level. Building on the fund-flow determinant literature, we develop a method to attribute the proportion of fund flow explained by a fund’s fundamental characteristics and past performance as smart and dumb money respectively. The fund-level Smart Dumb Ratio (SDR) positively predicts future cross-sectional fund return. A series of tests shows that SDR captures investor sophistication and positively correlates with other skill measures. Our findings confirm that investor composition of the fund can be a useful source of information to estimate the fund-level smart-money effect.

Keywords: mutual-fund flows, risk factors, non-risk factors, smart-money effect, CAPM

JEL Classification: G11, G12

Suggested Citation

Zhou, You and Li, Peng and Cai, Charlie Xiaowu and Keasey, Kevin, Investor Mix and Mutual Fund Performance: A Flow Based Measure of Relative Smartness (September 16, 2019). Available at SSRN: https://ssrn.com/abstract=2839798

You Zhou

University of Leeds - Leeds University Business School (LUBS) ( email )

Leeds LS2 9JT
United Kingdom

Peng Li

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom

Charlie Xiaowu Cai (Contact Author)

University of Liverpool Management School ( email )

University of Liverpool
Liverpool, L69 7ZA
United Kingdom

Kevin Keasey

University of Leeds - Division of Accounting and Finance ( email )

Leeds LS2 9JT
United Kingdom
+44 (0)113 343 2618 (Phone)

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