Investor-Stock Decoupling in Mutual Funds
57 Pages
Posted: 28 Sep 2016
Last revised: 18 Dec 2016
Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)
INSEAD - Finance
University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)
There are 3 versions of this paper
Date Written: September 1, 2016
Abstract
We investigate whether mutual funds whose investors and stocks are decoupled (i.e., investor location does not coincide with that of the stock holdings) benefit from a natural hedge as they have fewer outflows during market downturns and fewer inflows during upturns. Using a sample of equity mutual funds from 26 countries, we find that funds with higher investor-stock decoupling exhibit higher performance and this is more pronounced during the 2007-2008 financial crisis. We also find that decoupling allows fund managers to take less risk, be more active, and tilt their portfolios toward smaller and less liquid stocks.
Keywords: Mutual Funds, Performance, Fund Flows, Risk Taking, Limits to Arbitrage
JEL Classification: G20, G23
Suggested Citation:
Suggested Citation
Ferreira, Miguel A. and Massa, Massimo and Matos, Pedro P., Investor-Stock Decoupling in Mutual Funds (September 1, 2016). Management Science, Forthcoming; Darden Business School Working Paper No. 2844387; INSEAD Working Paper No. 2016/71/FIN. Available at SSRN: https://ssrn.com/abstract=2844387 or http://dx.doi.org/10.2139/ssrn.2844387
