We extend the model of Berk and Green (2004) to investigate the impact of two frictions, search costs and fi nancial constraints, on mutual fund performance. Our model predicts the survival of underperforming funds and delivers two new predictions: 1) differences in performance across funds are...

We link a seemingly biased trading behavior to equilibrium asset prices. U.S. equity mutual fund managers tend to sell both their big winners and big losers. This selling pressure pushes down current prices and leads to higher future returns; aggregating across funds, we nd that securities for...

It is widely believed that Closed-End Fund (CEF) discounts are due to the relatively disproportionate large numbers of small investors compared to institutional investors trading in them. An asset that is mainly traded by small investors has additional risk due to the fear factor that is usually...

The question of whether and how mutual fund managers provide valuable services for their clients motivates one of the largest literatures in finance. One candidate explanation is that funds process information about future asset values and use that information to invest in high-valued assets....

We show that mutual fund ratings generate correlated demand that creates systematic price fluctuations. Mutual fund investors chase fund performance via Morningstar ratings. Until June 2002, funds pursuing the same investment style had highly correlated ratings. Therefore, rating-chasing...