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Investor Attrition and Fund Flows in Mutual Funds

Published online by Cambridge University Press:  15 June 2017

Susan E. K. Christoffersen  and
Haoyu Xu
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Abstract

We explore the properties of equity mutual funds that experience a loss of assets after poor performance. We document that both inflows and outflows are less sensitive to performance, because performance-sensitive investors leave or decide not to invest after bad performance. Consistent with the idea that attrition measures the sorting of performance-sensitive investors, we find that attrition has less of an impact on the fund’s flow–performance sensitivity for institutional funds where there is less dispersion in investor performance sensitivity. Also, attrition has no effect on the flow–performance sensitivity when attrition arises after good performance or investors invest for nonperformance reasons.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 3 , June 2017 , pp. 867 - 893
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

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Footnotes

1

The paper has benefited immensely from comments from Stephen Brown (the editor) and Murray Carlson (the referee). We are also grateful for comments by seminar participants at the University of Toronto, Copenhagen Business School, 2014 Midwest Finance Meetings, 2014 Financial Management Association European Meetings, 2014 Financial Management Association Meetings, and 2014 Northern Finance Association meetings and from comments by Che-Kuan Chen, Hannah Lea Huhn, Puneet Jaiprakash, and Laleh Samarbakhsh. Christoffersen gratefully acknowledges research support from the Social Sciences and Humanities Research Council and the Global Risk Institute. This paper was written while Xu was at the University of Toronto. All errors are our own.

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