Mutual Fund Flows and Investor Sentiment

Download or read book Mutual Fund Flows and Investor Sentiment written by Egle Karmaziene and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that the shape of flow-performance relationship among open-end funds varies with investor sentiment. This link is stronger when the market tone is optimistic. Cross-sectional comparison reveals that the convexity of the relationship is more pronounced among funds of the type that receives less demand; especially among risky funds in low-investor-sentiment quarters. Managers of such funds that are under-performing have incentives to increase the risk of their portfolios; they do this by betting more on the market index and buying larger stocks in low-sentiment quarters. Applying Baker and Wurgler's (2006) findings suggests that this strategy is sub-optimal.