Investors Do Respond to Poor Mutual Fund Performance: Evidence from Inflows and Outflows

38 Pages Posted: 16 Nov 2006

See all articles by George D. Cashman

George D. Cashman

Marquette University; Texas Tech University

Daniel Deli

Securities and Exchange Commission (SEC)

Federico Nardari

University of Melbourne - Department of Finance

Sriram V. Villupuram

University of Texas at Arlington - Department of Finance and Real Estate

Multiple version iconThere are 2 versions of this paper

Date Written: November 2006

Abstract

The non-linear relation between mutual fund performance and subsequent net flows is well documented in the mutual fund literature. The extant literature generally ascribes the absence of net outflows in the face of poor performance to inactivity by existing fund investors (i.e., they do not to exit). We examine monthly gross flows and find that existing investors do, in fact, respond to poor mutual fund performance. Specifically, existing investors punish poorly performing funds by increasing outflows. We also find that existing and potential investors punish poorly performing funds by reducing inflows to those funds. Finally, we document that current investors respond to poor performance with the same intensity as they do to good performance.

Keywords: Mutual Funds, Performance-Flow Relation, Mutual Fund Flows

JEL Classification: G23, L14

Suggested Citation

Cashman, George D. and Deli, Daniel and Nardari, Federico and Villupuram, Sriram V., Investors Do Respond to Poor Mutual Fund Performance: Evidence from Inflows and Outflows (November 2006). Available at SSRN: https://ssrn.com/abstract=945296 or http://dx.doi.org/10.2139/ssrn.945296

George D. Cashman

Marquette University ( email )

College of Business Administration
P.O. Box 1881
Milwaukee, WI 53201-1881
United States
4142881448 (Phone)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

Daniel Deli (Contact Author)

Securities and Exchange Commission (SEC)

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Federico Nardari

University of Melbourne - Department of Finance ( email )

Faculty of Economics and Commerce
Parkville, Victoria 3010 3010
Australia

Sriram V. Villupuram

University of Texas at Arlington - Department of Finance and Real Estate ( email )

Box 19449 UTA
Arlington, TX 76019
United States

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