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Inattentive Investors and Mutual Fund-Flows

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  • Apoorva Javadekar

    (Centre for Advanced Financial Research and Learning (CAFRAL))

Abstract

If you want to separate paragraphs, put an empty line. Do not include keywords or JEL codes, they each have a separate field. Gruber (1996) drew attention to performance-chasing behavior exhibited by mutual fund investors. In this paper, I uncover a large heterogeneity in fund flow-performance sensitivity (fps) between and within mutual funds after conditioning the results on the prior performance of the fund . I explain this dependence of fps on fund’s prior performance using the existence of inattentive investors as hypothesized by Christoffersen and Musto (2002). Further I present various tests to pin down this mechanism by conditioning the results on type of funds, or investment styles, market states which are more likely to attract inattentive investors. I present a novel evidence that funds with poor past performance are more likely to increase fees given their low fps. I further show that this fee increase does not lead to additional fund outflows as it should within rational expectations model.

Suggested Citation

  • Apoorva Javadekar, 2017. "Inattentive Investors and Mutual Fund-Flows," Working Papers 022332, Centre for Advanced Financial Research and Learning (CAFRAL).
    • Handle: RePEc:ris:cafral:022332
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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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