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

Author

Listed:
  • 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.

Suggested Citation

  • Carlos F. Alves & Victor Mendes, 2006. "Mutual fund flows’ performance reaction: does convexity apply to small markets?," FEP Working Papers 204, Universidade do Porto, Faculdade de Economia do Porto.
  • Handle: RePEc:por:fepwps:204
    as

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    File URL: http://www.fep.up.pt/investigacao/workingpapers/06.02.09_WP204_alvesmendes.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Carlos Alves & Victor Mendes, 2007. "Are mutual fund investors in jail?," Applied Financial Economics, Taylor & Francis Journals, vol. 17(16), pages 1301-1312.

    More about this item

    Keywords

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

    JEL classification:

    • 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

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