Investor Behavior in the Mutual Fund Industry: Evidence from Gross Flows

Does performance explain mutual fund flows in small markets? The case of Portugal

“…strongly significant), meaning that the youngest funds are preferred by capital inflows. These results are consistent with the existing literature: Jain and Wu (2000), Sawicki and Finn (2002), Sapp and Tiwari (2004), Huang et al (2007), Cashman et al (2007) and Goriaev et al (2008) report a negative size effect, and Sawicki and Finn (2002), Huang et al (2007) and Goriaev et al (2008) a negative age effect on capital flows.…”

“…With the first variable, we intend to confirm the demand persistence phenomenon reported in Table 3 and documented by Jain and Wu (2000), Tiwari (2004), andCashman et al (2007), among others. We expect a positive coefficient, corresponding to the strong persistence phenomenon unveiled in Section 3.3.…”

“…These results confirm the evidence of demand persistence shown inTable 3.19 CF was also used as dependent variable. Results are very similar and are not reported.20 Cashman et al (2007) find evidence that investors do react to performance over windows shorter than the year.…”

“…23 Consistent with these results is the idea that management companies use the discretionary power resulting from their reputation and the unwillingness of their customers to bear search costs (or lower investor sophistication) to channel the savings entrusted to them to these more expensive funds. Cashman et al (2007) and Goriaev et al (2008) present evidence of a positive effect of load fees on net capital flows, while Sapp and Tiwari (2004) do not find such evidence, and Huang et al (2007) report unstable coefficient estimates. However, Barber et al (2005) find that investors react negatively to fees such as subscription fees and brokerage costs.…”

“…25 In addition to the results presented thus far, we have undertaken the following robustness tests (results not reported in the interest of space but available from the authors upon request). Firstly, we used a methodology similar to that used by Carhart (1997) and Sirri and Tufano (1998), and more recently by Chen et al (2004), Cashman et al (2007) and Huang et al (2007), which consists of individually analysing the observations of each period. In other words, an explanatory model of the NCF variable was estimated for each month using just one observation per fund.…”