Journal of Financial Economics Vol. 53 No. 3 1999
Investor flows and the assessed performance of open-end mutual funds
Abstract
Open-end equity funds provide a diversified equity positions with little direct cost to investors for liquidity. This study documents a statistically significant indirect cost in the form of a negative relation between a fund's abnormal return and investor flows. Controlling for this indirect cost of liquidity changes the average fund's abnormal return (net of expenses) from a statistically significant −1.6% per year to a statistically insignificant −0.2% and also fully explains the negative market-timing performance found in this and other studies of mutual fund returns. Thus, the common finding of negative return performance at open-end mutual funds is attributable to the costs of liquidity-motivated trading.
- DOI
- 10.1016/s0304-405x(99)00028-8
- Volume
- 53
- Issue
- 3
- Pages
- 439-466
- Language
- en
- Sources
- crossref openalex bibtex:phds-export.bib