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Fund Flow Volatility and Performance

Published online by Cambridge University Press:  26 November 2009

David Rakowski
David Rakowski*
Affiliation:
College of Business, Southern Illinois University Carbondale, 1025 Lincoln Dr., Carbondale, IL 62901. rakowski@cba.siu.edu
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Abstract

This paper provides a detailed analysis of the impact of daily mutual fund flow volatility on fund performance. I document a significant negative relationship between the volatility of daily fund flows and cross-sectional differences in risk-adjusted performance. This relationship is driven by domestic equity funds, as well as small funds, well-performing funds, and funds that experience inflows over the sample period. My results are consistent with performance differences arising from the transaction costs of nondiscretionary trading driven by daily fund flows, but not with performance differences arising from the suboptimal cash holdings that arise from fund flows.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 45 , Issue 1 , February 2010 , pp. 223 - 237
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2010

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