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Prior beliefs in market efficiency and fund cash flows

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  • Yeonjeong Ha
  • Haejune Oh

Abstract

This study investigates the effect of fund investors’ prior beliefs on flow-performance relationships. Nonmonotonic inflow- and outflow-performance relationships, with a monotonic relationship in net flows, suggest that more investors exhibit return-chasing behaviour but that some investors behave in a strongly biased manner; these phenomena exist in high-risk funds with extreme performance. With regard to investors’ prior beliefs in market efficiency to the fund performance, inflows and outflows have a monotonic relationship with performance. From these findings, the nonmonotonic relationship can be explained by the biased behaviour resulting from the lack of beliefs in market efficiency.

Suggested Citation

  • Yeonjeong Ha & Haejune Oh, 2021. "Prior beliefs in market efficiency and fund cash flows," Applied Economics, Taylor & Francis Journals, vol. 53(59), pages 6878-6896, December.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:59:p:6878-6896
    DOI: 10.1080/00036846.2021.1949434
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