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The simultaneous relation between fund flows and returns

Author

Listed:
  • Karen L. Benson

    (UQ Business School, The University of Queensland, Brisbane)

  • Robert W. Faff

    (Department of Accounting and Economics, Monash University, Melbourne)

  • Tom Smith

    (School of Finance and Applied Statistics, Australian National University, Canberra, tom.smith@anu.edu.au)

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.

Suggested Citation

  • Karen L. Benson & Robert W. Faff & Tom Smith, 2010. "The simultaneous relation between fund flows and returns," Australian Journal of Management, Australian School of Business, vol. 35(1), pages 51-68, April.
    • Handle: RePEc:sae:ausman:v:35:y:2010:i:1:p:51-68
    DOI: 10.1177/0312896209354217
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    References listed on IDEAS

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    3. Martí Ballester, Carmen Pilar, 2013. "Determinants of equity pension plan flows," Economics Discussion Papers 2013-15, Kiel Institute for the World Economy (IfW Kiel).
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