The simultaneous relation between fund flows and returns

Karen L. Benson, Robert W. Faff, Tom Smith*

*Corresponding author for this work

Research output: Contribution to journalArticle

11 Citations (Scopus)

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.

Original languageEnglish
Pages (from-to)51-68
Number of pages18
JournalAustralian Journal of Management
Volume35
Issue number1
DOIs
Publication statusPublished - Apr 2010
Externally publishedYes

Keywords

  • contemporaneous linkage
  • endogeneity
  • mutual fund flows
  • mutual fund returns

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