Investor Behavior in the Mutual Fund Industry: Evidence from Gross Flows

57 Pages Posted: 28 Feb 2007

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

Date Written: February 2007

Abstract

Using a large sample of monthly gross flows from 1997 to 2003, we uncover several previously undocumented regularities in investor behavior. First investor purchases and sales produce fund-level gross flows that are highly persistent. Persistence in fund flows dominates performance as a predictor of future fund flows. Also, failing to account for flow persistence leads to incorrect inferences with respect to the relation between performance and flows. Second, we document that investors react differently to performance depending on the type of fund, and that investor trading activity produces meaningful differences in the persistence of fund flows across mutual fund types. Third, at least some investors appear to evaluate and respond to mutual fund performance over much shorter time spans than previously assessed. Additionally, we document differences in the speed and magnitude of investors' purchase and sales responses to 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., Investor Behavior in the Mutual Fund Industry: Evidence from Gross Flows (February 2007). Available at SSRN: https://ssrn.com/abstract=966360 or http://dx.doi.org/10.2139/ssrn.966360

George D. Cashman (Contact Author)

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

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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