Mutual Fund Style Volatility and Fund Flows

57 Pages Posted: 10 Jan 2018

See all articles by Xiang Gao

Xiang Gao

Shanghai Business School

Xuemei Guo

Shanghai Business School

Date Written: December 14, 2018

Abstract

Equity mutual funds often follow a flexible trading strategy that results in volatile investment style drifts over time. This paper empirically examines whether investors respond to such fund behavior. We estimate a significant positive relationship between levels of style volatility and subsequent flows into mutual funds. Further, this relationship is less pronounced for funds in low- or high-return groups. These findings, which we confirm through several robustness checks, support a direct mechanism rather than an omitted variable in relating the two variables of interest. Our results also reveal the power of style volatility in predicting fund flows.

Keywords: Mutual Fund Flow, Style Volatility, Investor Learning, Manager Behavior

Suggested Citation

Gao, Xiang and Guo, Xuemei, Mutual Fund Style Volatility and Fund Flows (December 14, 2018). Available at SSRN: https://ssrn.com/abstract=3099323

Xiang Gao

Shanghai Business School ( email )

Shanghai Business School
2271 West Zhongshan Road
Shanghai, 200235
China

Xuemei Guo (Contact Author)

Shanghai Business School ( email )

2271, Zhongshan Road (W)
Hong Kou District
Shanghai, 200235
China

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