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Mutual fund flows’ performance reaction: does convexity apply to small markets?

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  • Carlos F. Alves

    ()
    (CEMPRE, Faculdade de Economia, Universidade do Porto)

  • Victor Mendes

    ()
    (CMVM - Portuguese Securities Commission)

Abstract

In this paper we study the performance reaction of investors in a small market context. Instead of the asymmetrical investors’ reaction to winners and losers, as usually documented for the US, an absence of risk-adjusted performance reaction was observed. The absence of reaction can be attributed to either lower investor sophistication, conflicts of interests in the context of the Portuguese universal banking industry, or the existence of relevant back-end load cost which prevent investors from reacting. A high persistence of net investment flows was also noted. Our results are consistent with the idea that the financial groups with larger market shares have the capacity “to drive” their customers to funds with larger fees. This practice emerges as a non-transparent means of increasing prices.

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Bibliographic Info

Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 204.

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Length: 21 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:por:fepwps:204

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Related research

Keywords: Mutual Funds; Performance Reaction; Investor Behaviour; Small Markets and Regulation;

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