Direction of Money Flows and Investors in Mutual Funds

In this paper we examine the impact of the profitability and risk of mutual funds on the investment decisions of its investors in the U.S. market, which has experienced a significant growth over the last decades. The investors´ behaviour is established from proxies such as net variations of money and participants. We consider different time periods and show the influence of the variables up to 3 months later. We show that investors focus their attention on short-term profitability, while for risk the time interval is longer. On the other hand, the analysis of gross and net profitability allows determining the scant importance of management fees in the U.S. market. In terms of risk, we find evidence that investors are not sensitive to measures such as semi-standard deviation or systematic risk