The Effect of New Money Inflows on the Flow-Performance Relationship in the U.S. Mutual Fund Industry
31 Pages Posted: 30 Apr 2004
Date Written: March 11, 2004
Abstract
Several papers have documented a convex relationship between past performance and money flows in the U.S. mutual fund industry. This paper shows that the observed relationship is consistent with a simple rational portfolio allocation model where the main determinant is the inflow of new money to mutual funds. The effect of new money is shown by empirically testing how the relationship becomes steeper in periods when inflow of new money into mutual funds is high.
Keywords: Mutual Funds, Flow-Performance Relationship, Portfolio Choice
JEL Classification: G11, G23
Suggested Citation: Suggested Citation
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