Confidence in Fund Manager Skills and Mutual Fund Flows

57 Pages Posted: 17 Jun 2022 Last revised: 19 Jul 2022

See all articles by Yangyi Liu

Yangyi Liu

Southwestern University of Finance and Economics (SWUFE) - School of Finance

Ronghua Luo

Southwestern University of Finance and Economics (SWUFE)

Senyang Zhao

Shanghai University of Finance and Economics

Date Written: July 19, 2022

Abstract

We find that mutual fund investors care about the uncertainty associated with the fund's skills, which is neglected by the existing literature. We propose a measure named Confidence in the Fund's Skills (CFS) to investigate this question empirically. CFS has a significantly positive impact on fund flows comparable with the fund alpha. CFS helps to reduce the uncertainty associated with fund performance evaluation, making investors care more about CFS during recessions and periods with high volatility and economic policy uncertainty. Moreover, CFS has an asymmetric impact on flow-performance sensitivity, thus helping explain the flow-performance convexity puzzle. The findings cannot be explained by ambiguity aversion, Morningstar ratings, and behavioral biases.

Keywords: Mutual fund flows, Confidence in the fund’s skills, Uncertainty, Time-varying responses, Flow-performance sensitivity

JEL Classification: G11, G23

Suggested Citation

Liu, Yangyi and Luo, Ronghua and Zhao, Senyang, Confidence in Fund Manager Skills and Mutual Fund Flows (July 19, 2022). Available at SSRN: https://ssrn.com/abstract=4135477 or http://dx.doi.org/10.2139/ssrn.4135477

Yangyi Liu (Contact Author)

Southwestern University of Finance and Economics (SWUFE) - School of Finance ( email )

Chengdu, 610074
China

Ronghua Luo

Southwestern University of Finance and Economics (SWUFE) ( email )

Zhizhi Zone 236, 555 Liutai Avenue
Wenjiang District
Chengdu, Sichuan 611130
China

Senyang Zhao

Shanghai University of Finance and Economics ( email )

NO. 777 Guoding Road
Shanghai, 200433
China

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