Journal of Economics and Finance

, Volume 38, Issue 4, pp 541-567

First online:

Investor behavior in the mutual fund industry: evidence from gross flows

  • George D. CashmanAffiliated withRawls College of Business, Finance Department, Texas Tech University Email author 
  • , Federico NardariAffiliated withUniversity of Houston
  • , Daniel N. DeliAffiliated withDePaul University
  • , Sriram V. VillupuramAffiliated withColorado State University

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Using a large sample of monthly gross flows from 1997 to 2003, we uncover several previously undocumented regularities in investor behavior. First, investor purchases and sales produce fund-level gross flows that are highly persistent. Persistence in fund flows dominates performance as a predictor of future fund flows. More importantly, failing to account for flow persistence leads to incorrect inferences with respect to the relation between performance and flows. Second, we document that investors react differently to performance depending on the type of fund, and that investor trading activity produces meaningful differences in the persistence of fund flows across mutual fund types. Third, at least some investors appear to evaluate and respond to mutual fund performance over much shorter time spans than previously assessed. Additionally, we document differences in the speed and magnitude of investors’ purchase and sales responses to performance.


Mutual Funds Performance Flow Relation Mutual Fund Flows

JEL classification

G23 L14