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Misspecifications in the fund flow-performance relationship

Author

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  • Ha, Yeonjeong
  • Ko, Kwangsoo

Abstract

This study shows the importance of return discrimination between funds in the flow-performance relationship. To do so, we employ objective-adjusted returns rather than performance ranks. We demonstrate that the net flow-performance relationship is a direct consequence of the convex inflow- and outflow-performance relationships, and that fund size and age have no significant effect on these relationships. When we measure past performance using 12-month objective-adjusted returns, we find a linear net flow-performance relationship after controlling for the investor-substitution effect.

Suggested Citation

  • Ha, Yeonjeong & Ko, Kwangsoo, 2019. "Misspecifications in the fund flow-performance relationship," Journal of Financial Intermediation, Elsevier, vol. 38(C), pages 69-81.
    • Handle: RePEc:eee:jfinin:v:38:y:2019:i:c:p:69-81
    DOI: 10.1016/j.jfi.2018.11.001
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    Citations

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    Cited by:

    1. Ha, Yeonjeong & Oh, Haejune, 2024. "Choice for smart investment in mutual funds: Single- or multi-period performance ranks," Finance Research Letters, Elsevier, vol. 59(C).
    2. Chen, Hong-Yi & Chen, Hsuan-Chi & Lai, Christine W., 2021. "Internet search, fund flows, and fund performance," Journal of Banking & Finance, Elsevier, vol. 129(C).
    3. Alper Gormus & Saban Nazlioglu & Elif Gormus, 2024. "ESG impact on oil and natural gas financialization through price transmission," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(3), pages 685-707, September.
    4. Rakowski, David & Yamani, Ehab, 2021. "Endogeneity in the mutual fund flow–performance relationship: An instrumental variables solution," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 247-271.
    5. Yaping Xiao & Haishu Qiao & Ting Xie, 2019. "Open-End Funds for Sustainable Economic Growth in China: The Relationship between Load Fees, Performance, and Flows," Sustainability, MDPI, vol. 11(22), pages 1-27, November.
    6. Klinkowska, Olga & Zhao, Yuan, 2023. "Fund flows and performance: New evidence from retail and institutional SRI mutual funds," International Review of Financial Analysis, Elsevier, vol. 87(C).

    More about this item

    Keywords

    Mis-measured performance; Return discrimination; Flow-performance relationship; Inflows and outflows; Investor-substitution effect;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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