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Precision about manager skill, mutual fund flows, and performance persistence

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  • Jeon, Hyunglae
  • Kang, Jangkoo
  • Lee, Changjun

Abstract

Constructing a measure for imprecision about manager skill, IMP, by standard deviation of multiple performance-based signals, we examine the role of IMP in flow-performance relationship. We find that future fund flows respond more (less) strongly to past performance measured with high (low) precision. Our finding is robust to the inclusion of control variables that are known to affect future fund flows. In addition, short-term performance persistence is observed among funds with lower IMP, implying that our IMP helps identify funds with performance persistence. Overall, our findings indicate that IMP plays a critical role in understanding the cross-section of future flows.

Suggested Citation

  • Jeon, Hyunglae & Kang, Jangkoo & Lee, Changjun, 2017. "Precision about manager skill, mutual fund flows, and performance persistence," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 222-237.
    • Handle: RePEc:eee:ecofin:v:40:y:2017:i:c:p:222-237
    DOI: 10.1016/j.najef.2017.03.002
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    More about this item

    Keywords

    Mutual fund flows; Flow-performance relationship; Precision about manager skill; Investor behavior;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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