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Investor Learning And Mutual Fund Flows
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Book Synopsis Investor Learning and Mutual Fund Flows by : Jennifer C. Huang
Download or read book Investor Learning and Mutual Fund Flows written by Jennifer C. Huang and published by . This book was released on 2012 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the implications of investor learning for the sensitivity of mutual fund flows to past performance. We illustrate theoretically that when some sophisticated investors learn from past fund performance to form their posterior expectations of managerial ability, the flow-performance sensitivity should be weaker for funds with more volatile past performance and longer track records. Moreover, the dampening effects of performance volatility and fund age on the flow-performance sensitivity should be stronger for funds attracting more sophisticated investors. We provide supporting evidence for this investor learning hypothesis using mutual fund flows and compare the relative level of sophistication among investors in load versus no-load funds, institutional versus retails funds, and star versus non-star funds.
Book Synopsis Swing Pricing and Fragility in Open-end Mutual Funds by : Dunhong Jin
Download or read book Swing Pricing and Fragility in Open-end Mutual Funds written by Dunhong Jin and published by International Monetary Fund. This book was released on 2019-11-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.
Book Synopsis Determinants of Mutual Fund Flows by : Steven Timothy Gallaher
Download or read book Determinants of Mutual Fund Flows written by Steven Timothy Gallaher and published by . This book was released on 2011 with total page 196 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate mutual fund flows at the individual fund and at the fund family level. At the individual, I use SEC filings to decompose fund flows into inflows and outflows. This decomposition of net flows into its component parts provides a way to examine differences in how search costs and investor learning affect investors who are entering a fund (or adding to their investments) versus those investors who are leaving a fund (or decreasing their investments). I then examine the effect of the existence of an advertisement for the fund on these investors. At the mutual fund family level, I examine how the characteristics and performance of mutual fund families affect the flows to the family as a whole. I then examine the effects of advertising expenditures on flows to the fund family.
Book Synopsis Headlines and Bottom Lines by : Ron Kaniel
Download or read book Headlines and Bottom Lines written by Ron Kaniel and published by . This book was released on 2007 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: To study attention and learning effects in financial markets, we investigate the role of media coverage in investment decisions of mutual fund investors and the consequent effects on fund flows. Employing a database of nearly 10,000 news articles and controlling for endogeneity in media coverage, we find that fund characteristics affect the probability of a news story and that the existence and stance of media coverage affects net investor flows into the fund in ways consistent with investor attention and learning.
Book Synopsis Mutual Fund Flows and Investor Sentiment by : Egle Karmaziene
Download or read book Mutual Fund Flows and Investor Sentiment written by Egle Karmaziene and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that the shape of flow-performance relationship among open-end funds varies with investor sentiment. This link is stronger when the market tone is optimistic. Cross-sectional comparison reveals that the convexity of the relationship is more pronounced among funds of the type that receives less demand; especially among risky funds in low-investor-sentiment quarters. Managers of such funds that are under-performing have incentives to increase the risk of their portfolios; they do this by betting more on the market index and buying larger stocks in low-sentiment quarters. Applying Baker and Wurgler's (2006) findings suggests that this strategy is sub-optimal.
Book Synopsis Individual Investor Mutual-fund Flows by : Zoran Ivković
Download or read book Individual Investor Mutual-fund Flows written by Zoran Ivković and published by . This book was released on 2008 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the relation between individuals' mutual fund flows and fund characteristics, establishing three key results. First, consistent with tax motivations, individual investors are reluctant to sell mutual funds that have appreciated in value and are willing to sell losing funds. Second, individuals pay attention to investment costs as redemption decisions are sensitive to both expense ratios and loads. Third, individuals' fund-level inflows and outflows are sensitive to performance, but in different ways. Inflows are related only to "relative" performance, suggesting that new money chases the best performers in an objective. Outflows are related only to "absolute" fund performance, the relevant benchmark for taxes.
Book Synopsis Mutual Fund Flows and Cross-Fund Learning Within Families by : David P. Brown
Download or read book Mutual Fund Flows and Cross-Fund Learning Within Families written by David P. Brown and published by . This book was released on 2014 with total page 69 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a model of performance evaluation and fund flows for mutual funds in a family. Family performance has two effects on the estimate of a member fund's skill and its inflows: a positive common-skill effect, and a negative correlated-noise effect. The overall spillover is either positive or negative, depending on the weight of common skill and correlation of noise in returns. Its absolute value increases with family size, and declines over time. The sensitivity of flows to a fund's own performance is affected accordingly. Empirical estimates of fund flow sensitivities show patterns consistent with rational cross-fund learning within families.
Book Synopsis Interactions Between Mutual Fund Flows, Asset Performances and Investor Behaviours in United States by : Dong Zhang
Download or read book Interactions Between Mutual Fund Flows, Asset Performances and Investor Behaviours in United States written by Dong Zhang and published by . This book was released on 2018 with total page 218 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Mutual Fund Flows and Investor Returns by : Geoffrey C. Friesen
Download or read book Mutual Fund Flows and Investor Returns written by Geoffrey C. Friesen and published by . This book was released on 2009 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis "Whom Do You Trust?" Investor-advisor Relationships and Mutual Fund Flows by : Leonard Kostovetsky
Download or read book "Whom Do You Trust?" Investor-advisor Relationships and Mutual Fund Flows written by Leonard Kostovetsky and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Mutual Fund Flows and Performance Streaks - How Mutual Fund Selection is Driven by Behavioural Biases by : Kai Aschick
Download or read book Mutual Fund Flows and Performance Streaks - How Mutual Fund Selection is Driven by Behavioural Biases written by Kai Aschick and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contributes to existing literature by analysing the role of performance streaks in the US mutual fund industry. Existing research suggests that performance streaks, i.e. multiple consecutive months of positive or negative performance, are an important determinant of mutual fund flows. My dataset comprises monthly returns and net-flows from US equity mutual funds from 1996 through 2015. My first analysis shows that streaks are not an indication of performance persistence and should not be used in investment decisions. Next, I develop two forecasting models using streaks based on several different performance metrics, such as excess returns and CAPM-alphas. The first one is a probit model that forecasts future investor sentiment, measured by the sign of future net-flows. This model is very robust to different time period specifications. The second one is a multiple linear regression model that forecasts actual future net- flows. The performance of this model strongly depends on the time period specified, as it performs poorly following the financial crisis. In both models the best-performing specification uses streaks based on CAPM-alphas. However, a Shapley decomposition reveals that streaks are, despite being statistically significant, the least-important predictors of future net-flows. Instead, lagged net-flows are the most-important determinants of future net-flows. The results of this thesis suggest that active streaks tip the scales when investors decide between two or more funds with a comparable track record. Hence, the results presented are ambiguous regarding investor rationality.
Book Synopsis The Abcs of Mutual Funds by : Vikram K. Nanda
Download or read book The Abcs of Mutual Funds written by Vikram K. Nanda and published by . This book was released on 2009 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the 1990s, a large majority of funds with front-end loads introduced additional share classes, which allowed investors to pay annual fees and/or back-end charges instead of a front-end load. The transition to a multiple-class structure provides a natural experiment with regard to investor clienteles and fund performance. We examine (a) whether the new fee structures increase fund cash flows by attracting investors with different investment horizons and sensitivities to performance; (b) whether changes in the volatility and level of fund flows induced by new investor clienteles affect fund performance - despite little change in fund management and investment objectives. Our finding is that the multiple-class funds, after controlling for performance and fund attributes, attract significantly more new money than the single-class funds. Consistent with the clientele hypothesis, investors in the new classes tend to have a shorter investment horizon and a greater sensitivity to fund performance than investors in the front-end load class. The downside to introducing the new classes, however, is a significant drop in fund performance, which erodes the cash flow benefit of the new classes. Furthermore, the performance drop is shown to be increasing in the relative size of the new classes and in the volatility of their fund flows.
Book Synopsis Systematic Fund Flows and Investor Clienteles in Mutual Funds? by : Martin Progin
Download or read book Systematic Fund Flows and Investor Clienteles in Mutual Funds? written by Martin Progin and published by . This book was released on 2018 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores a new approach to studying the relationship between mutual fund flows and performance. While academicians often work with either monetary or normalised flows, I base my study on a metric called "flow beta" which measures the sensitivity of fund flows to market flows. A greater exposure to market flows induces forced trading in adverse market conditions. Performances of high flow beta funds suffer from the lack of liquidity. An increase of 1 unit in the flow beta leads, on average, to a lower abnormal return of 6 bps p.a. Moreover, flow beta can be traced back to specific clientele. Institutional investors, considered more financially sophisticated, exhibit a lower sensitivity to market flows. Inferior performance for funds with higher flow beta amongst funds dedicated to professional investors was not identified, whereas flow beta penalises purely retail funds.
Book Synopsis Sentimental Mutual Fund Flows by : George J. Jiang
Download or read book Sentimental Mutual Fund Flows written by George J. Jiang and published by . This book was released on 2019 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that many stylized empirical patterns for mutual fund flows are driven by investor sentiment. Specifically, when sentiment is high, investors exhibit a stronger tendency of chasing past fund performance; fund flows are less sensitive to fund expenses; and investors are attracted more to funds with sheer visibility. Moreover, the well-documented positive relation between fund flows and future fund performance is significant only during high sentiment periods and is mainly driven by expected component of fund flows. Finally, we show that mutual fund investors exhibit a significantly negative timing ability at the individual fund level when sentiment is high.
Book Synopsis Power Investing with Sector Funds Mutual Fund Timing and Allocation Strategies by : Peter W. Madlem
Download or read book Power Investing with Sector Funds Mutual Fund Timing and Allocation Strategies written by Peter W. Madlem and published by CRC Press. This book was released on 1998-07-27 with total page 380 pages. Available in PDF, EPUB and Kindle. Book excerpt: By learning to read the direction and strengths of the market, even novice mutual fund investors can outperform the best stock pickers. That's because up to 90 percent of a stock's price movement is determined by trends in the market or the industry-not in the qualities of the company. By using point-and-figure charting techniques, Power Investing With Sector Funds supplies a simple and effective way to gauge the ebb-and-flow of the stock market, and ways to invest in the best-performing sectors at the right time, both in the U.S. and abroad. With the help of four technical tools-charting, trend lines, 20-week moving averages and relative strength-Power Investing With Sector Funds takes a step-by-step process to completely cover the principles of diversification, asset allocation, and sector investing to apply the technique for a successful investment program. Best of all, the system outlined in the book takes just 15 minutes a day!
Book Synopsis Mutual Fund Investor Learning and the Economic Cost of Seeking Alpha by : Geoffrey C. Friesen
Download or read book Mutual Fund Investor Learning and the Economic Cost of Seeking Alpha written by Geoffrey C. Friesen and published by . This book was released on 2019 with total page 79 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study analyzes how equity mutual fund investor behavior has changed over time, and the associated impact on investor returns. First, we find that from 1991-2016 investor return-chasing behavior declined and more recently disappeared, while investor flows have become more sensitive to expenses, past risk and alpha. We also present evidence that these changes correspond to changes in word usage and attention to alphas, past returns and fund expenses in the popular press and academic journals. Investors now pay more attention to fund characteristics that have the potential to improve future performance (e.g. risk, alpha and expenses), and less attention to characteristics that don't (e.g. past returns). Second, we examine the effect of increased attention to fund alphas on investors' realized performance. We confirm the well-documented positive persistence of alpha, but note that this positive cross-sectional persistence in alphas measures the net effect of two distinct phenomena: the cross-sectional variation in average alphas across funds (Harvey and Liu, 2018), and the time-series autocorrelation of alpha within each fund. Both properties are independently relevant: fund selection relates to investors' ability to exploit variation in alphas across funds; timing relates to the ability to exploit the autocorrelation patterns within a given fund. We show that at the fund level, alphas have strong negative serial correlation. Lastly we decompose total mutual fund investor Performance Gap into fund selection and timing components, then further decompose each of these into pieces related to each individual determinant of the cashflow, so that we can determine how much each individual behavior contributes to both fund selection and timing. Even though investors realize some benefit from selecting high-alpha funds (smart money), they time their cash flows very poorly by investing in those funds after periods with the highest realized alphas (dumb money). The dumb money effect dominates, and we show that chasing alphas reduces investor returns by three times as much as chasing past returns. Overall, our results suggest that mutual fund investors have learned that alpha is important, but have not yet learned how to effectively integrate this knowledge into their investment decisions.
Book Synopsis A Self-Exciting Model for Mutual Fund Flows by : Serge Darolles
Download or read book A Self-Exciting Model for Mutual Fund Flows written by Serge Darolles and published by . This book was released on 2019 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses the purchase and redemption behaviour of mutual fund investors and its implications on fund liquidity risk. We collect a novel set of proprietary data which contains a large number of French investors holding funds with various degrees of asset liquidity. We build a Self-Exciting Poisson model capturing fund flows' clustering effects and over-dispersion. The model improves the forecast accuracy of future flows and provides a reliable risk indicator (Flow Value at Risk.) Accordingly, we introduce the notion of liability risk where investor's behaviour increases mutual fund liquidity risk. We further decompose fund flows into investor categories. We find that investors exhibit high heterogeneous behaviour, and a lead-lag relation exists between them. Finally, we control flow dynamics for various economic conditions. We show that although flows evolve with economic conditions, investor's behaviour stays the main significant determinant of flows' randomness. Our findings encourage fund manager to adopt an ALM approach.
