Return Persistence and Fund Flows in the Worst Performing Mutual Funds

27 Pages Posted: 18 Apr 2007 Last revised: 22 Aug 2010

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Ian Tonks

University of Bristol

Date Written: April 2007

Abstract

We document that the observed persistence amongst the worst performing actively managed mutual funds is attributable to funds that have performed poorly both in the current and prior year. We demonstrate that this persistence results from an unwillingness of investors in these funds to respond to bad performance by withdrawing their capital. In contrast, funds that only performed poorly in the current year have a significantly larger (out)flow of funds/return sensitivity and consequently show no evidence of persistence in their returns.

Suggested Citation

Berk, Jonathan B. and Tonks, Ian, Return Persistence and Fund Flows in the Worst Performing Mutual Funds (April 2007). NBER Working Paper No. w13042. Available at SSRN: https://ssrn.com/abstract=980430

Jonathan B. Berk (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ian Tonks

University of Bristol ( email )

Department of Finance and Accounting
15-19 Tyndalls Park Road
Bristol, BS8 1PQ
United Kingdom

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