Volatility of Performance, Investor Learning, and the Flow-Performance Sensitivity
The widely-documented convex relationship between flows and past perfor- mance for actively managed mutual funds has raised interesting questions on the potential incentives for fund managers to take excessive risk. We investigate the effect of risk, measured by performance volatility, on the sensitivity of mutual fund flows to past performance. We find that flows respond less strongly to volatile performance. This result, combined with the effect of fund age (which proxies for investors prior uncertainty about a fund) on the flow-performance sensitivity, is consistent with the hypothesis that investors learn from past performance to form their posterior expectations. Moreover, we show that the dampening effect of performance volatility is lessened for older funds, as well as for funds with lower information barriers. We also demonstrate that performance volatility has a par- ticularly strong effect in the top performance range, and thus tends to reduce the benefit of taking more risk. Our results have significant implications for managerial risk-taking incentives.
Bayesian learning mutual fund flows flow-performance relationship.
Jennifer Huang Kelsey D. Wei Hong Yan
Department of Finance, McCombs School of Business, University of Texas at Austin, Austin,78712-1179. School of Management, Binghamton University - SUNY, Binghamton, NY 13902-6000. U.S. Securities & Exchange Commission, Office of Economic Analysis, 100 F Street, N.E., Washing-ton,
国际会议
西安
英文
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）