We examine gross flows to mutual funds and find that existing investors punish poorly performing funds by increasing outflows. We also find that existing and potential investors punish poorly performing funds by reducing inflows. Finally, we uncover that current investors respond to poor...

Using a large sample of monthly gross flows from 1997 to 2003, we uncover several previously undocumented regularities in investor behavior. First investor purchases and sales produce fund-level gross flows that are highly persistent. Persistence in fund flows dominates performance as a...

The non-linear relation between mutual fund performance and subsequent net flows is well documented in the mutual fund literature. The extant literature generally ascribes the absence of net outflows in the face of poor performance to inactivity by existing fund investors (i.e., they do not to...

We address the practical question of whether investors and researchers are likely to make invalid inferences about fund manager performance when using the wrong model and/or benchmark. We consider three well-known models, those of Jensen (1968), Treynor and Mazuy (1966), and Henriksson and...

We extend the variance decomposition model of Campbell (1991) to allow for time-varying stock market volatility. Specifically, we introduce a model in which the covariance matrix of the vector autoregression (VAR) follows a multivariate stochastic volatility (MSV) process. This VAR-MSV model...

In a model that is consistent with the existence of a home bias and with foreign investors that are less informed than domestic investors, we show that unexpectedly high worldwide returns lead to net equity inflows into small countries. In addition, a small country experiences net equity inflows...

This paper examines the implications for mutual fund performance measurement of two likely sources of specification error. We compare three well-known models, those of Jensen (1968), Treynor and Mazuy (1966), and Henriksson and Merton (1981), and two commonly-used timing benchmarks, the Samp;P...

This paper investigates the dynamic relation between market-wide trading activity and returns in 46 markets. Many stock markets exhibit a strong positive relation between turnover and past returns. These findings stand up in the face of various controls for volatility, alternative definitions...

We investigate the conditions under which an equilibrium intertemporal model based on portfolio decisions of investors can explain the dynamics of high frequency equity flows. Our model shows that, when there are barriers to international investment and when the expectations of foreign investors...