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TEMPORAL CHANGES IN THE DETERMINANTS OF MUTUAL FUND FLOWS
Author(s) -
Fant L. Franklin,
O'Neal Edward S.
Publication year - 2000
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2000.tb00747.x
Subject(s) - mutual fund , fund administration , target date fund , income fund , portfolio , open end fund , manager of managers fund , index fund , business , incentive , closed end fund , fund of funds , econometrics , finance , monetary economics , economics , institutional investor , microeconomics , corporate governance
We examine how the relation between mutual fund performance and fund flows has changed over time by separating our sample into two periods (1978–87 and 1988–97). We document an increase in the flow‐performance asymmetry in the second period that exacerbates the adverse incentive for fund managers to increase portfolio risk. We develop a measure of the elasticity of fund flows with respect to performance, which filters out the confounding influence of greater aggregate fund flows in the second period and allows an examination of whether current investors place more emphasis on prior performance when selecting funds. We conclude that, though top performing funds are rewarded with greater fund flows in the second half of our sample, the change is due solely to the increase in aggregate fund flows and not to an increased reliance on performance by individual fund investors. JEL classification: G1, G2, L1.