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Do Mutual Fund Investors Still Trust Standard Risk-Adjusted Performance Measures?
Bodson, Laurent; Cave, Arnaud; Sougné, Danielle
2012
 

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Keywords :
Mutual funds; Flows; Risk-adjusted performance measures
Abstract :
[en] We study the relationship between the risk-adjusted performance of mutual funds and their money flows (i.e. their subscriptions and redemptions). Testing the most traditional risk-adjusted performance measures, we identify the ones which best explain the flows of equity, bond or mixed funds. The risk-adjusted performance measures which attract the most the attention from investors are the Information ratios (mono- and multi-factor), the M-squared and the Sharpe ratios (traditional Sharpe ratios and Sharpe MVaR). We may conclude that fund managers who want to maximize their AuM (and, if applicable, increase their AuM based fees) must mainly focus their efforts on improving these standard performance measures. Furthermore, we also demonstrate that the performance-flow relationship is concave then convex. Indeed, amongst the funds with a negative performance, those achieving the worst results are affected by disproportionately high net outflows whereas, on the opposite side of the spectrum, the most successful funds experience much higher capital inflows.
Disciplines :
Finance
Author, co-author :
Bodson, Laurent ;  Université de Liège - ULiège > HEC-Ecole de gestion > HEC-Ecole de gestion
Cave, Arnaud
Sougné, Danielle ;  Université de Liège - ULiège > HEC-Ecole de gestion : UER > Gestion financière et consolidation
Language :
English
Title :
Do Mutual Fund Investors Still Trust Standard Risk-Adjusted Performance Measures?
Publication date :
June 2012
Number of pages :
24
Available on ORBi :
since 17 April 2013

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