Article2009

Fund Flow Volatility and Performance

118 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Abstract

Abstract This paper provides a detailed analysis of the impact of daily mutual fund flow volatility on fund performance. I document a significant negative relationship between the volatility of daily fund flows and cross-sectional differences in risk-adjusted performance. This relationship is driven by domestic equity funds, as well as small funds, well-performing funds, and funds that experience inflows over the sample period. My results are consistent with performance differences arising from the transaction costs of nondiscretionary trading driven by daily fund flows, but not with performance differences arising from the suboptimal cash holdings that arise from fund flows.

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References

1997On Persistence in Mutual Fund Performance 1992The Cross-Section of Expected Stock Returns 1985Continuous Auctions and Insider Trading 1968THE PERFORMANCE OF MUTUAL FUNDS IN THE PERIOD 1945–1964 1966Mutual Fund Performance 1998Costly Search and Mutual Fund Flows 1997Risk Taking by Mutual Funds as a Response to Incentives 1996Another Puzzle: The Growth in Actively Managed Mutual Funds

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