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Active Flows and Passive Returns

Author

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  • Ariel Levy
  • Offer Lieberman

Abstract

The positive relationship between money flows into investment products and their return performance is an important market indicator for market practitioners and academics. This article studies the impact that active versus passive investment styles have on this relationship. We further evaluate the effects of a passive approach in two crucial stages: portfolio selection and asset allocation. We find that a passive investment style in either stage weakens the relationship between flows and returns compared with an active style. However, the investment style in the asset allocation stage has a greater effect than in the portfolio selection stage, on the relationship between flows and returns.

Suggested Citation

  • Ariel Levy & Offer Lieberman, 2016. "Active Flows and Passive Returns," Review of Finance, European Finance Association, vol. 20(1), pages 373-401.
    • Handle: RePEc:oup:revfin:v:20:y:2016:i:1:p:373-401.
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    File URL: http://hdl.handle.net/10.1093/rof/rfu054
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    References listed on IDEAS

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    1. Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 45-70, April.
    2. Robert F. Stambaugh, 2014. "Investment Noise and Trends," NBER Working Papers 20072, National Bureau of Economic Research, Inc.
    3. Robert F. Stambaugh, 2014. "Presidential Address: Investment Noise and Trends," Journal of Finance, American Finance Association, vol. 69(4), pages 1415-1453, August.
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    Cited by:

    1. Wagner, Moritz & Lee, John Byong-Tek & Margaritis, Dimitris, 2022. "Mutual fund flows and seasonalities in stock returns," Journal of Banking & Finance, Elsevier, vol. 144(C).
    2. Antonakakis, Nikolaos & Chang, Tsangyao & Cunado, Juncal & Gupta, Rangan, 2018. "The relationship between commodity markets and commodity mutual funds: A wavelet-based analysis," Finance Research Letters, Elsevier, vol. 24(C), pages 1-9.

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