Indexing and the performance-flow relation of actively managed mutual funds

Simon Lesmeister, Peter Limbach, Raghavendra Rau and Florian Sonnenburg

No 22-02, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: We exploit the staggered introduction of index funds in different segments and countries to study how increased competition from indexing affects the performance-flow relation and incentives of actively managed equity mutual funds. An increase in the market shares of available country-level index funds in active fund benchmarks is associated with a significantly lower sensitivity of flows to past performance and with a shift from a convex performance-flow relation towards a more linear relation. The increased competition from index funds is also associated with a higher fund performance-liquidation sensitivity, suggesting real economic consequences for active fund managers and fund management companies.

Keywords: performance-flow relation; performance-liquidation sensitivity; mutual funds; active management; passive management; competition (search for similar items in EconPapers)
JEL-codes: G11 G23 G41 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:2202

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