Running From a Bear: How Poor Stock Market Performance Affects the Determinants of Mutual Fund Flows

Authors

  • David G. Shrider

    1. The author is from the Farmer School of Business, Miami University. He acknowledges Mary Bange, Kelly Brunarski, Werner De Bondt, William Even, Scott Harrington, Tim Koch, Melayne McInnes, William T. Moore, Greg Niehaus, Terry Nixon, Tom Smythe, D.H. Zhang, seminar participants at Butler University, East Carolina University, Illinois State University, Miami University, Northeastern University, the University of South Carolina, Xavier University, the 2003 Eastern Finance Association meeting, and the 2004 Financial Management Association meeting for comments and suggestions. The author is especially grateful to an anonymous referee and to Peter F. Pope (editor) for their helpful comments.
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* Address for correspondence: David G. Shrider, Farmer School of Business, Miami University, 120 Upham Hall, Oxford, OH 45056, USA.
e-mail: shridedg@muohio.edu

Abstract

Abstract:  Using a proprietary data set to study how past performance affects the determinants of mutual fund flows for a sample of load fund investors, I provide evidence that the determinants of fund flow depend on market conditions for both redemptions and purchases. Specifically, I show that, for redemptions, relative performance and risk adjusted performance are important determinants during a period of record flows into mutual funds. Conversely, during a period of poor performance, absolute performance becomes much more important and relative performance and risk adjusted performance become less important. For purchases, absolute performance, risk adjusted performance, and most relative performance measures become more important during the bear market.

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