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Investor Cash Flow and Mutual Fund Behavior
Author(s) -
Liu Xiangbo,
Liu Zijun,
Qiu Zhigang
Publication year - 2015
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12053
Subject(s) - manager of managers fund , closed end fund , fund administration , mutual fund , open end fund , target date fund , income fund , finance , sovereign wealth fund , business , index fund , investment fund , cash flow , management fee , assets under management , investment management , cash , economics , fixed asset , microeconomics , institutional investor , market liquidity , incentive , corporate governance , production (economics)
We study the behavior of a mutual fund manager in a discrete‐time model, in which new investors may choose to invest in the fund after the fund manager has made trading decisions. We show that under certain conditions the fund manager may choose to buy overvalued assets at the expense of the investors in order to attract new investments, who would otherwise not invest in the fund. This can potentially lead to higher risky asset prices and a higher‐than‐optimal proportion of investment in risky assets in the active fund management industry.