Equity Returns and the Fund Flow Sensitivity Premium

56 Pages Posted: 23 Nov 2011 Last revised: 2 Feb 2021

Date Written: June 16, 2014

Abstract

We empirically identify stocks which make flows into mutual funds holding them more performance-sensitive, and show that fund managers dislike holding these stocks; these stocks earn positive abnormal returns of around 3.5% annually; and, the sensitivity premium has increased over time as the mutual fund sector has grown. Higher flow-performance sensitivity seems to be induced by small, hard-to-value stocks with low analyst coverage and less liquidity; but, abnormal returns to sensitive stocks are not subsumed by these underlying characteristics. Finally, falsification tests show that aversion to sensitive stocks is more related to managerial exposure to investor-driven flows, rather than liquidity-preference.

Keywords: Intermediaries and Asset Prices, Behavioral Finance, Mutual Funds, Investor Behavior, Portfolio Choice

JEL Classification: G02, G11, G23

Suggested Citation

Mukherjee, Abhiroop, Equity Returns and the Fund Flow Sensitivity Premium (June 16, 2014). Available at SSRN: https://ssrn.com/abstract=1963701 or http://dx.doi.org/10.2139/ssrn.1963701

Abhiroop Mukherjee (Contact Author)

affiliation not provided to SSRN

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
126
Abstract Views
998
Rank
404,654
PlumX Metrics