Investment Flows: Retail versus Institutional Mutual Funds

Abstract

In this study, I compare the fund selection criteria used by investors in retail mutual funds with the criteria of investors in institutional mutual funds. I show several differences in investment flow patterns between retail and institutional funds, which are consistent with differences in investor profiles of the two types of fund. More specifically, compared with investors of retail mutual funds, clients of institutional mutual funds use more quantitatively sophisticated criteria such as risk-adjusted return measures and tracking error, demonstrate stronger momentum-driven and herding behaviors, and are less sensitive to fund expense ratio.

Keywords: mutual funds, institutional funds, retail funds, investment decisions, fund flows, performance evaluation

JEL Classification: G02, G11, G23