Are mutual fund investors in jail?
AbstractThe absence of investor reaction to the poor performance of mutual funds is a widely reported phenomenon. This paper investigates the role of load costs as an explanation for the phenomenon and concludes that back-end load fees are an obstacle to reaction. We find that investors with a high likelihood of undergoing a liquidity crisis, preferring liquidity in decision making, act contrary to the reaction hypothesis, and investors with broader investment horizons do not react to poor performances due to the fact that they are “imprisoned” by back-end load fees.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 203.
Length: 20 pages
Date of creation: Feb 2006
Date of revision:
Mutual Fund; Performance Reaction; Load Costs; Investor Behaviour;
Other versions of this item:
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-FIN-2006-02-12 (Finance)
- NEP-FMK-2006-02-12 (Financial Markets)
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- Carlos Alves & Victor Mendes, 2011. "Does performance explain mutual fund flows in small markets? The case of Portugal," Portuguese Economic Journal, Springer, vol. 10(2), pages 129-147, August.
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