Investor-Stock Decoupling in Mutual Funds

Massimo Massa, Miguel Ferreira () and Pedro Pinto Matos

No 11476, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We investigate whether mutual funds whose investors and stocks are decoupled (i.e., investor location does not coincide with that of the stock holdings) benefit from a natural hedge as they have fewer outflows during market downturns and fewer inflows during upturns. Using a sample of equity mutual funds from 26 countries, we find that funds with higher investor-stock decoupling exhibit higher performance and this is more pronounced during the 2007-2008 financial crisis. We also find that decoupling allows fund managers to take less risk, be more active, and tilt their portfolios toward smaller and less liquid stocks.

Keywords: Mutual funds; Performance; Fund flows; Risk taking; Limits to arbitrage (search for similar items in EconPapers)
JEL-codes: G20 G23 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-fmk and nep-rmg
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