IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v65y2023ics0275531923000594.html
   My bibliography  Save this article

Investor flow-chasing and price–performance puzzle: Evidence from global infrastructure funds

Author

Listed:
  • Xu, Ruihui
  • Zhang, Xuliang
  • Gozgor, Giray
  • Lau, Chi Keung Marco
  • Yan, Cheng

Abstract

Despite the importance and peculiarity of the infrastructure fund, determinants of infrastructure fund flow and the relation between fees and fund performance were poorly understood. This paper documents two new findings using a unique dataset for global infrastructure funds from January 2005 to June 2019. First, investor flow-chasing exists at the level of infrastructure fund companies, which is intensified by the opacity of information and uncertainty of returns. Second, infrastructure funds charge higher fees even when their before-fee performance is worse, which is explained by fund characteristics and year effects. Based on these findings, we put forward countermeasures from the perspectives of investors, regulators, investor protection managers, and fund managers, with incentive mechanism reforms to alleviate the price-performance puzzle, thereby improving the efficiency of infrastructure fund portfolios.

Suggested Citation

  • Xu, Ruihui & Zhang, Xuliang & Gozgor, Giray & Lau, Chi Keung Marco & Yan, Cheng, 2023. "Investor flow-chasing and price–performance puzzle: Evidence from global infrastructure funds," Research in International Business and Finance, Elsevier, vol. 65(C).
  • Handle: RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000594
    DOI: 10.1016/j.ribaf.2023.101933
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531923000594
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ribaf.2023.101933?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Yan, Xuemin (Sterling), 2008. "Liquidity, Investment Style, and the Relation between Fund Size and Fund Performance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(3), pages 741-767, September.
    2. Adams, John C. & Mansi, Sattar A. & Nishikawa, Takeshi, 2012. "Are mutual fund fees excessive?," Journal of Banking & Finance, Elsevier, vol. 36(8), pages 2245-2259.
    3. Dave Donaldson, 2018. "Railroads of the Raj: Estimating the Impact of Transportation Infrastructure," American Economic Review, American Economic Association, vol. 108(4-5), pages 899-934, April.
    4. Agarwal, Vikas & Gay, Gerald D. & Ling, Leng, 2014. "Window dressing in mutual funds," CFR Working Papers 11-07 [rev.3], University of Cologne, Centre for Financial Research (CFR).
    5. Iannotta, Giuliano & Navone, Marco, 2012. "The cross-section of mutual fund fee dispersion," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 846-856.
    6. Muñoz, Fernando & Vicente, Ruth, 2018. "Hindsight effect: What are the actual cash flow timing skills of mutual fund investors?," Journal of Empirical Finance, Elsevier, vol. 45(C), pages 181-193.
    7. Huang, Lixin & Li, Wei & Wang, Hong & Wu, Liansheng, 2022. "Stock dividend and analyst optimistic bias in earnings forecast," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 643-659.
    8. Lakonishok, Josef, et al, 1991. "Window Dressing by Pension Fund Managers," American Economic Review, American Economic Association, vol. 81(2), pages 227-231, May.
    9. Dave Donaldson & Richard Hornbeck, 2016. "Railroads and American Economic Growth: A "Market Access" Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 799-858.
    10. Brad M. Barber & Xing Huang & Terrance Odean, 2016. "Which Factors Matter to Investors? Evidence from Mutual Fund Flows," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2600-2642.
    11. Thomas Philippon, 2015. "Has the US Finance Industry Become Less Efficient? On the Theory and Measurement of Financial Intermediation," American Economic Review, American Economic Association, vol. 105(4), pages 1408-1438, April.
    12. Cremers, Martijn & Ferreira, Miguel A. & Matos, Pedro & Starks, Laura, 2016. "Indexing and active fund management: International evidence," Journal of Financial Economics, Elsevier, vol. 120(3), pages 539-560.
    13. Susan E. K. Christoffersen & David K. Musto, 2002. "Demand Curves and the Pricing of Money Management," The Review of Financial Studies, Society for Financial Studies, vol. 15(5), pages 1499-1524.
    14. Del Guercio, Diane & Genç, Egemen & Tran, Hai, 2018. "Playing favorites: Conflicts of interest in mutual fund management," Journal of Financial Economics, Elsevier, vol. 128(3), pages 535-557.
    15. Ľuboš Pástor & Robert F. Stambaugh, 2012. "On the Size of the Active Management Industry," Journal of Political Economy, University of Chicago Press, vol. 120(4), pages 740-781.
    16. Youchang Wu & Russ Wermers & Josef Zechner, 2016. "Managerial Rents vs. Shareholder Value in Delegated Portfolio Management: The Case of Closed-End Funds," The Review of Financial Studies, Society for Financial Studies, vol. 29(12), pages 3428-3470.
    17. Javier Gil‐Bazo & Pablo Ruiz‐Verdú, 2009. "The Relation between Price and Performance in the Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 64(5), pages 2153-2183, October.
    18. Rabah Arezki & Patrick Bolton & Sanjay Peters & Frédéric Samama & Joseph Stiglitz, 2017. "From global savings glut to financing infrastructure," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 32(90), pages 221-261.
    19. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, August.
    20. Akbas, Ferhat & Armstrong, Will J. & Sorescu, Sorin & Subrahmanyam, Avanidhar, 2015. "Smart money, dumb money, and capital market anomalies," Journal of Financial Economics, Elsevier, vol. 118(2), pages 355-382.
    21. Gozgor, Giray, 2018. "Determinants of the domestic credits in developing economies: The role of political risks," Research in International Business and Finance, Elsevier, vol. 46(C), pages 430-443.
    22. Trabelsi, Nader & Gozgor, Giray & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2021. "Effects of Price of Gold on Bombay Stock Exchange Sectoral Indices: New Evidence for Portfolio Risk Management," Research in International Business and Finance, Elsevier, vol. 55(C).
    23. Gil-Bazo, Javier & Ruiz-Verdú, Pablo, 2008. "When cheaper is better: Fee determination in the market for equity mutual funds," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 871-885, September.
    24. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    25. Ajay Khorana & Henri Servaes & Peter Tufano, 2009. "Mutual Fund Fees Around the World," The Review of Financial Studies, Society for Financial Studies, vol. 22(3), pages 1279-1310.
    26. James J. Choi & David Laibson & Brigitte C. Madrian, 2010. "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 23(4), pages 1405-1432, April.
    27. William Fung & David A. Hsieh & Narayan Y. Naik & Tarun Ramadorai, 2008. "Hedge Funds: Performance, Risk, and Capital Formation," Journal of Finance, American Finance Association, vol. 63(4), pages 1777-1803, August.
    28. Giray GOZGOR & Baris KABLAMACI, 2014. "The linkage between oil and agricultural commodity prices in the light of the perceived global risk," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 60(7), pages 332-342.
    29. Malley, James & Philippopoulos, Apostolis, 2023. "The macroeconomic effects of funding U.S. infrastructure," European Economic Review, Elsevier, vol. 152(C).
    30. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July.
    31. Massimo Ferrari & Alberto Giovannini & Massimo Pompei, 2016. "The challenge of infrastructure financing," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 32(3), pages 446-474.
    32. Elton, Edwin J. & Gruber, Martin J. & de Souza, Andre, 2019. "Passive mutual funds and ETFs: Performance and comparison," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 265-275.
    33. Lopez-de-Silanes, Florencio & Phalippou, Ludovic & Gottschalg, Oliver, 2015. "Giants at the Gate: Investment Returns and Diseconomies of Scale in Private Equity," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 50(3), pages 377-411, June.
    34. Berk, Jonathan B. & van Binsbergen, Jules H., 2016. "Assessing asset pricing models using revealed preference," Journal of Financial Economics, Elsevier, vol. 119(1), pages 1-23.
    35. George J. Jiang & H. Zafer Yüksel, 2019. "Sentimental mutual fund flows," The Financial Review, Eastern Finance Association, vol. 54(4), pages 709-738, November.
    36. Jennifer Huang & Kelsey D. Wei & Hong Yan, 2007. "Participation Costs and the Sensitivity of Fund Flows to Past Performance," Journal of Finance, American Finance Association, vol. 62(3), pages 1273-1311, June.
    37. Cheng, Tingting & Yan, Cheng, 2017. "Evaluating the size of the bootstrap method for fund performance evaluation," Economics Letters, Elsevier, vol. 156(C), pages 36-41.
    38. Joseph Chen & Harrison Hong & Ming Huang & Jeffrey D. Kubik, 2004. "Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization," American Economic Review, American Economic Association, vol. 94(5), pages 1276-1302, December.
    39. Linlin Ma & Yuehua Tang & Juan‐Pedro Gómez, 2019. "Portfolio Manager Compensation in the U.S. Mutual Fund Industry," Journal of Finance, American Finance Association, vol. 74(2), pages 587-638, April.
    40. David Blake & Alberto G. Rossi & Allan Timmermann & Ian Tonks & Russ Wermers, 2013. "Decentralized Investment Management: Evidence from the Pension Fund Industry," Journal of Finance, American Finance Association, vol. 68(3), pages 1133-1178, June.
    41. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2015. "Scale and skill in active management," Journal of Financial Economics, Elsevier, vol. 116(1), pages 23-45.
    42. Manuel Adelino & Sophia Chiyoung Cheong & Jaewon Choi & Ji Yeol Jimmy Oh, 2023. "Mutual Fund Flows and the Supply of Capital in Municipal Financing," NBER Working Papers 30980, National Bureau of Economic Research, Inc.
    43. Evans, Richard Burtis & Prado, Melissa Porras & Zambrana, Rafael, 2020. "Competition and cooperation in mutual fund families," Journal of Financial Economics, Elsevier, vol. 136(1), pages 168-188.
    44. repec:oup:revfin:v:29:y:2016:i:12:p:3428-3470. is not listed on IDEAS
    45. Miguel A. Ferreira & Aneel Keswani & António F. Miguel & Sofia B. Ramos, 2013. "The Determinants of Mutual Fund Performance: A Cross-Country Study," Review of Finance, European Finance Association, vol. 17(2), pages 483-525.
    46. Kenchington, David & Wan, Chi & Yüksel, H. Zafer, 2019. "Gross profitability and mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 104(C), pages 31-49.
    47. Bai, John (Jianqiu) & Ma, Linlin & Mullally, Kevin A. & Solomon, David H., 2019. "What a difference a (birth) month makes: The relative age effect and fund manager performance," Journal of Financial Economics, Elsevier, vol. 132(1), pages 200-221.
    48. Vikram Nanda, 2004. "Family Values and the Star Phenomenon: Strategies of Mutual Fund Families," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 667-698.
    49. Hu, Yi & Dai, Tiantian & Li, Yong & Mallick, Sushanta & Ning, Lutao & Zhu, Baohua, 2021. "Underwriter reputation and IPO underpricing: The role of institutional investors in the Chinese growth enterprise market," International Review of Financial Analysis, Elsevier, vol. 78(C).
    50. Will J. Armstrong & Egemen Genc & Marno Verbeek, 2019. "Going for Gold: An Analysis of Morningstar Analyst Ratings," Management Science, INFORMS, vol. 67(5), pages 2310-2327, May.
    51. Agoraki, Maria-Eleni K. & Aslanidis, Nektarios & Kouretas, Georgios P., 2022. "U.S. banks’ lending, financial stability, and text-based sentiment analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 197(C), pages 73-90.
    52. Arturo Bris & Huseyin Gulen & Padma Kadiyala & P. Raghavendra Rau, 2007. "Good Stewards, Cheap Talkers, or Family Men? The Impact of Mutual Fund Closures on Fund Managers, Flows, Fees, and Performance," The Review of Financial Studies, Society for Financial Studies, vol. 20(3), pages 953-982.
    53. Wang, Xichen & Yan, Ji (Karena) & Yan, Cheng & Gozgor, Giray, 2021. "Emerging stock market exuberance and international short-term flows," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 75(C).
    54. Yan, Cheng & Cheng, Tingting, 2019. "In search of the optimal number of fund subgroups," Journal of Empirical Finance, Elsevier, vol. 50(C), pages 78-92.
    55. Dong, Dayong & Wu, Keke & Fang, Jianchun & Gozgor, Giray & Yan, Cheng, 2022. "Investor attention factors and stock returns: Evidence from China," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    56. Gibson John & Rioja Felix, 2020. "The welfare effects of infrastructure investment in a heterogeneous agents economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 20(1), pages 1-17, January.
    57. Kuehnlenz, Sophia & Orsi, Bianca & Kaltenbrunner, Annina, 2023. "Central bank digital currencies and the international payment system: The demise of the US dollar?," Research in International Business and Finance, Elsevier, vol. 64(C).
    58. Anarkulova, Aizhan & Cederburg, Scott & O’Doherty, Michael S., 2022. "Stocks for the long run? Evidence from a broad sample of developed markets," Journal of Financial Economics, Elsevier, vol. 143(1), pages 409-433.
    59. Robert F. Stambaugh, 2014. "Presidential Address: Investment Noise and Trends," Journal of Finance, American Finance Association, vol. 69(4), pages 1415-1453, August.
    60. Joshua M. Pollet & Mungo Wilson, 2008. "How Does Size Affect Mutual Fund Behavior?," Journal of Finance, American Finance Association, vol. 63(6), pages 2941-2969, December.
    61. Ana C. Díaz†Mendoza & Germán López†Espinosa & Miguel A. Martínez, 2014. "The Efficiency of Performance†Based Fee Funds," European Financial Management, European Financial Management Association, vol. 20(4), pages 825-855, September.
    62. Vikas Agarwal & Gerald D. Gay & Leng Ling, 2014. "Window Dressing in Mutual Funds," The Review of Financial Studies, Society for Financial Studies, vol. 27(11), pages 3133-3170.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2015. "Scale and skill in active management," Journal of Financial Economics, Elsevier, vol. 116(1), pages 23-45.
    2. Teodor Dyakov & Marno Verbeek, 2019. "Can Mutual Fund Investors Distinguish Good from Bad Managers?," International Review of Finance, International Review of Finance Ltd., vol. 19(3), pages 505-540, September.
    3. Rakowski, David & Yamani, Ehab, 2021. "Endogeneity in the mutual fund flow–performance relationship: An instrumental variables solution," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 247-271.
    4. Pástor, Ľuboš & Stambaugh, Robert F. & Taylor, Lucian A., 2015. "Scale and skill in active management," Journal of Financial Economics, Elsevier, vol. 116(1), pages 23-45.
    5. Cuthbertson, Keith & Nitzsche, Dirk & O'Sullivan, Niall, 2016. "A review of behavioural and management effects in mutual fund performance," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 162-176.
    6. Nicolae Gârleanu & Lasse Heje Pedersen, 2018. "Efficiently Inefficient Markets for Assets and Asset Management," Journal of Finance, American Finance Association, vol. 73(4), pages 1663-1712, August.
    7. Mattia Landoni & Stephen P. Zeldes, 2020. "Should the Government be Paying Investment Fees on $3 Trillion of Tax-Deferred Retirement Assets?," NBER Working Papers 26700, National Bureau of Economic Research, Inc.
    8. Giuseppe Galloppo, 2021. "Size," Springer Books, in: Asset Allocation Strategies for Mutual Funds, chapter 0, pages 151-190, Springer.
    9. Lesmeister, Simon & Limbach, Peter & Rau, P. Raghavendra & Sonnenburg, Florian, 2022. "Indexing and the performance-flow relation of actively managed mutual funds," CFR Working Papers 22-02, University of Cologne, Centre for Financial Research (CFR).
    10. Feldman, David & Saxena, Konark & Xu, Jingrui, 2020. "Is the active fund management industry concentrated enough?," Journal of Financial Economics, Elsevier, vol. 136(1), pages 23-43.
    11. F. Douglas Foster & Geoffrey J. Warren, 2015. "Why Might Investors Choose Active Management?," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 16(1), pages 20-39, January.
    12. Servaes, Henri & Sigurdsson, Kari, 2022. "The Costs and Benefits of Performance Fees in Mutual Funds," Journal of Financial Intermediation, Elsevier, vol. 50(C).
    13. Yang Song, 2020. "The Mismatch Between Mutual Fund Scale and Skill," Journal of Finance, American Finance Association, vol. 75(5), pages 2555-2589, October.
    14. Hung, Pi-Hsia & Lien, Donald & Kuo, Ming-Sin, 2020. "Window dressing in equity mutual funds," The Quarterly Review of Economics and Finance, Elsevier, vol. 78(C), pages 338-354.
    15. Khim, Veasna & Razafitombo, Hery, 2023. "Scale and skills in European active management: Impact of a new regulatory context," Journal of Banking & Finance, Elsevier, vol. 154(C).
    16. Yue Xu, 2021. "Spillovers of Senior Mutual Fund Managers’ Capital Raising Ability," CREATES Research Papers 2022-03, Department of Economics and Business Economics, Aarhus University.
    17. Hitzemann, Steffen & Sokolinski, Stanislav & Tai, Mingzhu, 2022. "Paying for beta: Leverage demand and asset management fees," Journal of Financial Economics, Elsevier, vol. 145(1), pages 105-128.
    18. Pástor, Luboš & Stambaugh, Robert F. & Taylor, Lucian, 2017. "Portfolio Liquidity and Diversification: Theory and Evidence," CEPR Discussion Papers 12195, C.E.P.R. Discussion Papers.
    19. Carneiro, Livia Mendes & Eid Junior, William & Yoshinaga, Claudia Emiko, 2022. "The implications of passive investments for active fund management: International evidence," Global Finance Journal, Elsevier, vol. 53(C).
    20. Chang, Xiaochen & Guo, Songlin & Huang, Junkai, 2022. "Kidnapped mutual funds: Irrational preference of naive investors and fund incentive distortion," International Review of Financial Analysis, Elsevier, vol. 83(C).

    More about this item

    Keywords

    Infrastructure funds; Flow-chasing; Price-performance puzzle; Information asymmetry; Portfolio efficiency;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:65:y:2023:i:c:s0275531923000594. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.