Participation Costs and the Sensitivity of Fund Flows to Past Performance
We present a simple rational model to highlight the effect of investors’ participation costs on the response of mutual fund flows to past fund performance, and provide supporting empirical evidence for the model’s implications for the asymmetric flow-performance relationship. By incorporating participation costs, which include both search and transaction costs, into a model in which investors learn about managers’ ability from past returns, we show that fund flows are increasingly more sensitive to good performance, as better performance allows more new investors to overcome the hurdle of investing in the fund. Using various fund characteristics as proxies for participation costs, we demonstrate that, for funds with low participation costs, it does not require top-tier performance to attract potential investors. The overall flow-performance relationship of these funds is thus less convex than that of their higher-cost peers.
Jennifer Huang Kelsey D. Wei Hong Yan
Department of Finance, McCombs School of Business, University of Texas at Austin, Austin, Texas 7871 School of Management, Binghamton University - SUNY, Binghamton, NY 13902-6000
国际会议
西安
英文
1-51
2006-07-17（万方平台首次上网日期，不代表论文的发表时间）