Work

Past Performance May Be an Illusion: Performance, Flows, and Fees in Mutual Funds

Year: 2016

Type: article

Abstract: Mutual funds report performance in the form of a holding period return (HPR) over standardized horizons. Changes in HPRs are equally influenced by new and previously reported stale returns which enter and exit the horizon. Investors appear unable to differentiate between the joint determinants, reacting with equal strength to both signals. Stale performance chasing is amplified for funds which promote performance via advertising and is more pronounced during periods of uncertainty in financial markets. Fund managers exploit this behavior by preferentially timing fee increases to align with periods of heightened investor demand resulting from stale performance chasing.

Source: Critical Finance Review

DOI: 10.1561/104.00000032

Authors: Blake Phillips, Kantura Pukthuanthong, P. Raghavendra Rau

Institutions: University of Waterloo, University of Missouri, University of Cambridge

Language: English

Topic: Financial Markets and Investment Strategies

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funders: University of Waterloo, Social Sciences and Humanities Research Council of Canada

OpenAlex ID: W3123136197

FWCI: 5.577

Cites: 39

Cited by: 35

Related to: 10