Hostname: page-component-78c5997874-fbnjt Total loading time: 0 Render date: 2024-11-15T04:43:23.408Z Has data issue: false hasContentIssue false
  • English
  • Français

Mutual Fund Attributes and Investor Behavior

Published online by Cambridge University Press:  06 April 2009

Nicolas P. B. Bollen
Nicolas P. B. Bollen
Affiliation:
nick.bollen@owen.vanderbilt.edu, Vanderbilt University, Owen Graduate School of Management, 401 21st Avenue South, Nashville, TN 37240.
Get access Rights & Permissions [Opens in a new window]

Abstract

I study the dynamics of investor cash flows in socially responsible mutual funds. Consistent with anecdotal evidence of loyalty, the monthly volatility of investor cash flows is lower in socially responsible funds than in conventional funds. I find strong evidence that cash flows into socially responsible funds are more sensitive to lagged positive returns than cash flows into conventional funds, and weaker evidence that cash outflows from socially responsible funds are less sensitive to lagged negative returns. These results indicate that investors derive utility from the socially responsible attribute, especially when returns are positive.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 42 , Issue 3 , September 2007 , pp. 683 - 708
Copyright
Copyright © School of Business Administration, University of Washington 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abel, A. “Asset Prices under Habit Formation and Catching up with the Joneses.” American Economic Review, 80 (1990), 38–42.Google Scholar
Banz, R. “The Relationship between Return and Market Value of Common Stocks.” Journal of Financial Economics, 9 (1981), 3–18.CrossRefGoogle Scholar
Barber, B. M., and Odean, T.. “Boys will be Boys: Gender, Overconfidence, and Common Stock Investment.” Quarterly Journal of Economics, 116 (2001), 261–292.CrossRefGoogle Scholar
Barber, B. M.; Odean, T.; and Zheng, L.. “Out of Sight, Out of Mind: The Effects of Expenses on Mutual Fund Flows.” Journal of Business, 78 (2005), 2095–2119.CrossRefGoogle Scholar
Basu, S. “Investment Performance of Common Stocks in Relation to their Price-Earnings Ratios: A Test of the Efficient Market Hypothesis.” Journal of Finance, 32 (1977), 663–682.Google Scholar
Bauer, R.; Koedijk, K.; and Otten, R.. “International Evidence on Ethical Mutual Fund Performance and Investment Style.” Journal of Banking and Finance, 29 (2005), 1751–1767.CrossRefGoogle Scholar
Berk, J. B., and Green, R. C.. “Mutual Fund Flows and Performance in Rational Markets.” Journal of Political Economy, 112 (2004), 1269–1295.CrossRefGoogle Scholar
Birkes, D., and Dodge, Y.. Alternative Methods of Regression. New York, NY: John Wiley & Sons, Inc. (1993).CrossRefGoogle Scholar
Blume, M. E., and Stambaugh, R. F.. “Biases in Computed Returns: An Application of the Size Effect.” Journal of Financial Economics, 12 (1983), 387–404.CrossRefGoogle Scholar
Boudoukh, J.; Richardson, M.; Subrahmanyam, M.; and Whitelaw, R. F.. “Stale Prices and Strategies for Trading Mutual Funds.” Financial Analysts Journal, 58 (2002), 53–71.CrossRefGoogle Scholar
Brav, A., and Heaton, J. B.. “Competing Theories of Financial Anomalies.” Review of Financial Studies, 15 (2002), 575–606.CrossRefGoogle Scholar
Busse, J. A. “Another Look at Mutual Fund Tournaments.” Journal of Financial and Quantitative Analysis, 36 (2001), 53–73.CrossRefGoogle Scholar
Capon, N.; Fitzsimons, G. J.; and Prince, R. A.. “An Individual Level Analysis of the Mutual Fund Investment Decision.” Journal of Financial Services Research, 10 (1996), 59–82.CrossRefGoogle Scholar
Carhart, M. “On the Persistence of Mutual Fund Performance.” Journal of Finance, 52 (1997), 57–82.CrossRefGoogle Scholar
Chevalier, J., and Ellison, G.. “Risk Taking by Mutual Funds as a Response to Incentives.” Journal of Political Economy, 105 (1997), 1167–1200.CrossRefGoogle Scholar
De Bondt, W. F. M., and Thaler, R.. “Does the Stock Market Overreact?” Journal of Finance, 40 (1985), 793–805.CrossRefGoogle Scholar
De Bondt, W. F. M., and Thaler, R.. “Further Evidence on Investor Overreaction and Stock Market Seasonality.” Journal of Finance, 42 (1987), 557–581.CrossRefGoogle Scholar
Del Guercio, D., and Tkac, P. A.. “The Determinants of the Flow of Funds of Managed Portfolios: Mutual Funds versus Pension Funds.” Journal of Financial and Quantitative Analysis, 37 (2002), 523–557.CrossRefGoogle Scholar
Derwall, J.; Guenster, N.; Bauer, R.; and Koedijk, K.. “The Eco-Efficiency Premium Puzzle.” Financial Analysts Journal, 61 (2005), 51–63.CrossRefGoogle Scholar
Edelen, R. M. “Investor Flows and the Assessed Performance of Open-End Mutual Funds.” Journal of Financial Economics, 53 (1999), 439–466.CrossRefGoogle Scholar
Fama, E. F., and French, K. R.. “The Cross-Section of Expected Returns.” Journal of Finance, 47 (1992), 427–465.Google Scholar
Fama, E. F., and French, K. R.. “Common Risk Factors in the Returns of Stocks and Bonds.” Journal of Financial Economics, 33 (1993), 3–53.CrossRefGoogle Scholar
Geczy, C.; Stambaugh, R.; and Levin, D.. “Investing in Socially Responsible Mutual Funds.” Working Paper, University of Pennsylvania (2003).CrossRefGoogle Scholar
Goetzmann, W.; Ivkovich, W.; and Rouwenhorst, K.. “Day Trading International Mutual Funds: Evidence and Policy Solutions.” Journal of Financial and Quantitative Analysis, 36 (2001), 287–309.CrossRefGoogle Scholar
Gruber, M. J. “Another Puzzle: The Growth in Actively Managed Mutual Funds.” Journal of Finance, 51 (1996), 783–810.CrossRefGoogle Scholar
Guerard, J. B. “Is there a Cost to Being Socially Responsible in Investing?” Journal of Forecasting, 16 (1997), 475–490.3.0.CO;2-X>CrossRefGoogle Scholar
Hamilton, S.; Jo, H.; and Statman, M.. “Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds.” Financial Analysts Journal, 49 (1993), 62–66.CrossRefGoogle Scholar
Hortaçsu, A., and Syverson, C.. “Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds.” Quarterly Journal of Economics, 119 (2004), 403–456.CrossRefGoogle Scholar
Investment Company Institute. Mutual Fund Fact Book. Washington, DC: Investment Company Institute (2003).Google Scholar
Ippolito, R. A. “Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry.” Journal of Law and Economics, 35 (1992), 45–70.CrossRefGoogle Scholar
Jegadeesh, N., and Titman, S.. “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency.” Journal of Finance, 48 (1993), 65–91.CrossRefGoogle Scholar
Jensen, M. C. “The Performance of Mutual Funds in the Period 1945–1964.” Journal of Finance, 23 (1968), 389–416.Google Scholar
Kahneman, D., and Tversky, A.. “Prospect Theory: An Analysis of Decision under Risk.” Econometrica, 46 (1979), 171–185.Google Scholar
Kahneman, D., and Tversky, A.. “Intuitive Prediction: Biases and Corrective Procedures.” In Judgment under Uncertainty: Heuristics and Biases, Kahneman, D., Slovic, P., and Tversky, A., eds. London: Cambridge University Press (1982).CrossRefGoogle Scholar
Keeney, R. L., and Raiffa, H.. Decisions with Multiple Objectives: Preferences and Value Tradeoffs. New York, NY: Cambridge University Press (1993).CrossRefGoogle Scholar
Keim, D. B. “Size Related Anomalies and Stock Return Seasonality: Further Empirical Evidence.” Journal of Financial Economics, 12 (1983), 13–32.CrossRefGoogle Scholar
Khorana, A., and Servaes, H.. “The Determinants of Mutual Fund Starts.” Review of Financial Studies, 12 (1999), 1043–1074.CrossRefGoogle Scholar
Lakonishok, J.; Shleifer, A.; and Vishny, R.. “Contrarian Investment, Extrapolation, and Risk.” Journal of Finance, 49 (1994), 1541–1578.CrossRefGoogle Scholar
Lintner, J. “The Valuation of Risky Assets and the Selection of Risky Investments in Stock Portfolios and Capital Budgets.” Review of Economics and Statistics, 47 (1965), 13–37.CrossRefGoogle Scholar
Luther, R. G.; Matatko, J.; and Corner, D.. “The Investment Performance of U.K. Ethical Unit Trusts.” Accounting, Auditing and Accountability Journal, 5 (1992), 57–70.CrossRefGoogle Scholar
Lynch, A. W., and Musto, D. K.. “How Investors Interpret Past Returns.” Journal of Finance, 58 (2003), 2033–2058.CrossRefGoogle Scholar
Markowitz, H. “Portfolio Selection.” Journal of Finance, 7 (1952), 77–91.Google Scholar
Massa, M. “How Do Family Strategies Affect Fund Performance? When Performance-Maximization is Not the Only Game in Town.” Journal of Financial Economics, 67 (2003), 249–304.CrossRefGoogle Scholar
Mossin, J. “Equilibrium in a Capital Asset Market.” Econometrica, 35 (1966), 768–783.CrossRefGoogle Scholar
Nanda, V.; Wang, Z. J.; and Zheng, L.. “The ABCs of Mutual Funds: On the Introduction of Multiple Share Classes.” Working Paper, University of Michigan (2005).Google Scholar
Pástor, L., and Stambaugh, R. F.. “Investing in Equity Mutual Funds.” Journal of Financial Economics, 63 (2002), 351–380.CrossRefGoogle Scholar
Reinganum, M. R. “The Anomalous Stock Market Behavior of Small Firms in January: Empirical Tests for Tax-Loss Effects.” Journal of Financial Economics, 12 (1983), 89–104.CrossRefGoogle Scholar
Sharpe, W. “Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk.” Journal of Finance, 19 (1964), 425–442.Google Scholar
Sirri, E. R., and Tufano, P.. “Costly Search and Mutual Fund Flows.” Journal of Finance, 53 (1998), 1589–1622.CrossRefGoogle Scholar
Social Investment Forum. 2001 Report on Socially Responsible Investing Trends in the United States. Washington DC: Social Investment Forum, Ltd. (2001).Google Scholar
Statman, M. “Behavioral Finance: Past Battles and Future Engagements.” Financial Analysts Journal, 55 (1999), 18–27.CrossRefGoogle Scholar
Statman, M. “Socially Responsible Mutual Funds.” Financial Analysts Journal, 56 (2000), 30–39.CrossRefGoogle Scholar
Warther, V. A. “Aggregate Mutual Fund Flows and Security Returns.” Journal of Financial Economics, 39 (1995), 209–235.CrossRefGoogle Scholar
Zheng, L. “Is Money Smart? A Study of Mutual Fund Investors' Fund Selection Ability.” Journal of Finance, 54 (1999), 901–933.CrossRefGoogle Scholar