Investor–Stock Decoupling in Mutual Funds

Miguel A. Ferreira (), Massimo Massa () and Pedro Matos ()
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Miguel A. Ferreira: Nova School of Business and Economics, 1099-032 Lisbon, Portugal
Massimo Massa: INSEAD, 77305 Fontainebleau Cedex, France
Pedro Matos: Darden School of Business, University of Virginia, Charlottesville, Virginia 22903

Management Science, 2018, vol. 64, issue 5, 2144-2163

Abstract: We investigate whether mutual funds whose investors and stocks are decoupled (i.e., investor location does not coincide with that of the stock holdings) benefit from a natural hedge as they have fewer outflows during market downturns and fewer inflows during upturns. Using a sample of equity mutual funds from 26 countries, we find that funds with higher investor–stock decoupling exhibit higher performance, and this is more pronounced during the 2007–2008 financial crisis. We also find that decoupling allows fund managers to take less risk, be more active, and tilt their portfolios toward smaller and less liquid stocks.

Keywords: mutual funds; performance; fund flows; risk taking; limits to arbitrage (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:64:y:2018:i:5:p:2144-2163

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