Mutual Funds Flows and the “Sheriff of Nottingham” Effect

Lucia Milone () and Paolo Pellizzari
Additional contact information
Lucia Milone: University Ca’ Foscari of Venice

Chapter Chapter 10 in Artificial Economics, 2009, pp 117-128 from Springer

Abstract: Abstract Investors in mutual funds appear to reward disproportionately the best performing funds with large inflows while, at the same time, avoid to withdraw similar amounts from the poorly managed funds. We show that this peculiar flat-convex shape of the flow-performance curve for mutual funds can be generally explained by a model where profit chasing customers punish the bad funds by switching a fraction of their wealth to the best ones (“Sheriff of Nottingham” effect). In the absence of external flows, the model provably produces a constant curve when the standard deviation of excess returns is much larger than the level of the returns. This for the most part explains the apparent insensitivity of flows to below-average returns. The introduction of exogenous injections of money invested in the top funds complete the model and provides a realistic increase in the flows of the funds yielding above-average returns. We finally show by simulation that our results are robust to variations in the values of the parameters of the model.

Keywords: Mutual Fund; Constant Curve; Hedge Fund; Excess Return; Good Fund (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Mutual funds flows and the "Sheriff of Nottingham" effect (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-02956-1_10

Ordering information: This item can be ordered from
http://www.springer.com/9783642029561

DOI: 10.1007/978-3-642-02956-1_10

Access Statistics for this chapter

More chapters in Lecture Notes in Economics and Mathematical Systems from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().