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Mutual Fund Flows and Investor Returns: An Empirical Examination of Fund Investor Timing Ability

36 Pages Posted: 20 Jan 2007 Last revised: 10 Aug 2009

Geoffrey C. Friesen

University of Nebraska at Lincoln - Department of Finance

Travis Sapp

Iowa State University - Department of Finance

Abstract

We examine the timing ability of mutual fund investors using cash flow data at the individual fund level. Over 1991-2004 equity fund investor timing decisions reduce fund investor average returns by 1.56% annually. Underperformance due to poor timing is greater in load funds and funds with relatively large risk-adjusted returns. In particular, the magnitude of investor underperformance due to poor timing largely offsets the risk-adjusted alpha gains offered by good-performing funds. Investors in both actively managed funds and index funds exhibit poor investment timing. We demonstrate that our empirical results are consistent with investor return-chasing behavior.

Keywords: Mutual fund performance, fund cash flows, investor timing, fund clienteles

JEL Classification: G11, G20

Suggested Citation

Friesen, Geoffrey C. and Sapp, Travis, Mutual Fund Flows and Investor Returns: An Empirical Examination of Fund Investor Timing Ability. Journal of Banking and Finance, Vol. 31, pp. 2796-2816, 2007. Available at SSRN: https://ssrn.com/abstract=957728

Geoffrey C. Friesen (Contact Author)

University of Nebraska at Lincoln - Department of Finance ( email )

Department of Finance
Lincoln, NE 68588-0489
United States
402-472-2334 (Phone)

Travis Sapp

Iowa State University - Department of Finance ( email )

3362 Gerdin Business Bldg.
Ames, IA 50011-1350
United States
515-294-2717 (Phone)
515-294-3525 (Fax)

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