The simultaneous relation between fund flows and returns

Karen L. Benson, Robert Faff and Tom Smith
Additional contact information
Karen L. Benson: UQ Business School, The University of Queensland, Brisbane
Tom Smith: School of Finance and Applied Statistics, Australian National University, Canberra, tom.smith@anu.edu.au

Australian Journal of Management, 2010, vol. 35, issue 1, 51-68

Abstract: We assess the simultaneous relation between fund flows and fund returns and show that current month flows and returns play a key role in understanding the flow/performance linkage. Current returns have a positive impact on current flows, suggesting that investors react quickly to performance information. However, current flows do not universally impact current returns. Notably, the pursuit of fund flows in large funds and established funds results in negative return impacts, yet it is these returns that drive investor decisions. Investors in institutional funds are able to identify high/low return funds and react in the current period resulting in an apparent positive impact of flows on returns.

Keywords: Contemporaneous linkage; endogeneity; mutual fund flows; mutual fund returns (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ausman:v:35:y:2010:i:1:p:51-68

DOI: 10.1177/0312896209354217

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