Investors' Response to the Performance of Professional Fund Managers: Evidence from the Australian Wholesale Funds Market

Abstract

This study investigates the influence of past performance on investors' choice of professionally managed investment fund and provides evidence of a link between recent performance and the movement of assets-under-management. The sensitivity of funds flow to recent performance is estimated using data for 124 Australian wholesale funds during the 1980-to-1995 period. The results provide unequivocal evidence of the influence of prior period performance (annual and three-year average) on the movement of assets-under-management. Tests are conducted using gross return and three methods of risk adjustment with index, group average, CAPM as benchmarks. The results provide little evidence of differences in investor response to various measures of performance.

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