Investor Clientele and Style Changing Behavior in Mutual Funds

27 Pages Posted: 30 Jan 2018

See all articles by Dennis Bams

Dennis Bams

Maastricht University - Department of Finance; Open University Heerlen

Rogér Otten

Maastricht University - Limburg Institute of Financial Economics (LIFE); ABP Pensionfund

Ehsan Ramezanifar

Maastricht University - Department of Finance

Date Written: December 29, 2017

Abstract

This paper examines different clienteles’ reactions to style changing behavior of mutual funds. Using the granularity of daily mutual fund data, we show that heterogeneity in investors’ sophistication levels strongly relates to heterogeneity in responses to style changing behavior. The empirical approach that we apply to several proxies of investors’ sophistication level indicates that less sophisticated investors reward style-changing behavior by an increase in fund flow, while more sophisticated investors punish this behavior by redemption. We show that style changing behavior has different impact on various types of fund performance measures. More specifically, style deviation has a strong positive impact on the simple fund performance measures, which are used by less-sophisticated investors, while it has no significant impact on more advanced fund performance measures. Our empirical findings also report that less-sophisticated investors drive the aggregate investors’ reactions to the style deviation. Overall, we argue that a comparison of the fund flow-style changing relationship, by accounting for investor’s sophistication level, allows for a more complete picture of an investor’s response to the changes in mutual funds’ investment style behavior.

Suggested Citation

Bams, Dennis and Otten, Rogér and Ramezanifar, Ehsan, Investor Clientele and Style Changing Behavior in Mutual Funds (December 29, 2017). Available at SSRN: https://ssrn.com/abstract=3106225 or http://dx.doi.org/10.2139/ssrn.3106225

Dennis Bams

Maastricht University - Department of Finance ( email )

Maastricht, 6200 MD
Netherlands

Open University Heerlen ( email )

Netherlands

Rogér Otten

Maastricht University - Limburg Institute of Financial Economics (LIFE) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31 43 388 3838 (Phone)
+31 43 388 4875 (Fax)

HOME PAGE: http://www.fdewb.unimaas.nl/finance/faculty/Otten

ABP Pensionfund

Amsterdam
Netherlands

Ehsan Ramezanifar (Contact Author)

Maastricht University - Department of Finance ( email )

Maastricht
Netherlands

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