Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds

45 Pages Posted: 30 Dec 2004

See all articles by Gordon J. Alexander

Gordon J. Alexander

University of Minnesota - Twin Cities - Carlson School of Management

Gjergji Cici

University of Kansas - School of Business

Scott Gibson

College of William and Mary - Mason School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: March 10, 2006

Abstract

We relate the performance of mutual fund trades to their motivation. A fund manager who buys stocks when there are heavy investor outflows is likely to be motivated by the belief that the stocks are significantly undervalued. In contrast, when there are heavy inflows the manager is likely to be motivated to work off excess liquidity by buying stocks. Our analysis reveals that managers making purely valuation-motivated purchases substantially beat the market, but are unable to do so when compelled to invest excess cash from investor inflows. A similar, but weaker, pattern is found for stocks that are sold.

Suggested Citation

Alexander, Gordon J. and Cici, Gjergji and Gibson, George Scott, Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds (March 10, 2006). AFA 2005 Philadelphia Meetings Paper. Available at SSRN: https://ssrn.com/abstract=641743 or http://dx.doi.org/10.2139/ssrn.641743

Gordon J. Alexander (Contact Author)

University of Minnesota - Twin Cities - Carlson School of Management ( email )

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Gjergji Cici

University of Kansas - School of Business ( email )

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HOME PAGE: http://business.ku.edu/gjergji-cici

George Scott Gibson

College of William and Mary - Mason School of Business ( email )

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