FLOW

Abstract

Performance chasing is pervasive in modern investment vehicles – active mutual funds, index mutual funds, and exchange traded funds (ETFs). Within all vehicles, the flow-performance relation exists for broad based and niche funds and for the skill- and non-skill components of returns. Across all dimensions, ETF sensitivity is turbocharged and heightened by institutional ownership and mitigated by secondary market trading. The future performance of flows is insignificant and similar across vehicles. Only active mutual fund and ETF flows produce stock- and aggregate-level price pressure. The patterns documented within and across vehicles challenge existing models.

Keywords: Investment Flow, ETFs, Mutual Funds, Passive Investment

JEL Classification: G12, G14, G23