A U-Shaped Flow-Performance Sensitivity Across the Globe

74 Pages Posted: 24 Feb 2024 Last revised: 5 Apr 2024

Date Written: April 2, 2024


Using a comprehensive sample of equity mutual funds from 23 countries, we document that the flow-performance sensitivity is greater for both top and bottom performance, compared to the middle. The sensitivity of outflows to bad performance is amplified in bear markets, during the COVID lockdown, and for funds holding illiquid assets. These results only hold over short return horizons (quarter or year), while at the three-year horizon the conventional convex flow-performance relationship prevails. Overall, our results are consistent with a first-mover advantage in redemptions after poor recent performance and the price impact externality of the manager’s forced sales.

Keywords: Mutual fund flows, flow-performance relationship, strategic complementarities, market states, illiquidity, performance horizon, forced sales

JEL Classification: G11, G12, G14, G15, G23

Suggested Citation

Broman, Markus S. and Bergsma Lovelace, Kelley, A U-Shaped Flow-Performance Sensitivity Across the Globe (April 2, 2024). Available at SSRN: https://ssrn.com/abstract=4734646 or http://dx.doi.org/10.2139/ssrn.4734646

Markus S. Broman (Contact Author)

Ohio University ( email )

College of Business, Finance Department
Copeland Business Annex 207
Athens, OH 45701-2979
United States

HOME PAGE: http://www.markusbroman.com

Kelley Bergsma Lovelace

Ohio University ( email )

1 Ohio University
Athens, OH OH 45701
United States

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