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Investor-Stock Decoupling in Mutual Funds

57 Pages Posted: 28 Sep 2016 Last revised: 18 Dec 2016

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Massimo Massa

INSEAD - Finance

Pedro P. Matos

University of Virginia - Darden School of Business; European Corporate Governance Institute (ECGI)

Multiple version iconThere 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

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

Miguel Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Massimo Massa

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)

Pedro Matos

University of Virginia - Darden School of Business ( email )

University of Virginia
P.O. Box 6550
Charlottesville, VA 22906-6550
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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