Comparing Performance Sensitivity of Retail and Institutional Mutual Funds’ Investment Flows

Abstract

In this paper, we examine and compare the form of the flow-performance relationship for U.S. retail and institutional mutual funds. We provide evidence that the convex form of the flow-performance function documented by previous research characterizes mostly the relationship in the upper region of the performance scale. In contrast, the flow-performance relationship for the low-performance region appears to be concave. Furthermore, we document that the observed convexity is more pronounced for retail funds, while the concavity can be mainly attributed to institutional funds.

Keywords: flow-performance relationship, institutional funds, retail funds, mutual fund flows, performance evaluation

JEL Classification: G02, G11, G23