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Investors Do Respond to Poor Mutual Fund Performance: Evidence from Inflows and Outflows


  • We have benefited from the comments of Zoran Ivkovic, Matthew Spiegel, Kelsey Wei, Hong Yan, seminar participants at Arizona State University, session participants at the Western Finance Association 2007 annual meeting, and session participants at the Financial Management Association 2007 annual meeting. A previous version of this paper was titled, “Who Drives the Non-linear Relation Between Mutual Fund Performance and Net Flows?”

Department of Finance and Real Estate, College of Business, 1272 Campus Delivery, Colorado State University, Fort Collins, CO 80523; Phone: (970) 491-3969; Fax: (970) 491-7665; E-mail:


We examine the relation between mutual fund performance and gross flows for a large sample of actively managed U.S. mutual funds. Unlike previous studies that have only examined periods of generally increasing net flows, our sample includes periods of both increasing and decreasing net flows. We find that outflows are related to performance, with investors withdrawing money from poor performers. We also find that outflows and inflows respond asymmetrically to performance, outflows increase more aggressively following poor performance, and inflows increase more aggressively following good performance. Additionally, we find a symmetric performance net flow relation.