Journal of Asset Management

, Volume 13, Issue 5, pp 327–338 | Cite as

The impact of flow of funds and management style on abnormal performance

  • Abhay KaushikEmail author
Original Article


This article analyses 1349 well-diversified, actively managed equity mutual funds across nine different categories from the period January 1992 to November 2011, based on the management style (active or passive), pursued by fund managers who receive new money as it flows (commonly known as flow of funds) into the mutual funds. Results of this research do not support, in totality, the results found in the existing literature. Abnormal performance does diminish following the excessive inflow of funds for large-cap funds; however, it increases for small-cap funds for the same phenomenon. I further evaluate abnormal performance based on active and passive style of fund management following the inflow and outflow of funds. Results of this study show mixed results. Although active management does improve the performance of a segment of equity funds, the improvement is not evident for all types of equity funds. Finally, this study also applies a portfolio approach, and results indicate that the impact of active management on a fund's abnormal performance is not homogeneous across winner and loser portfolios for the same type of funds.


performance of mutual funds flow of funds manager tenure cash investment in top 10 per cent assets 


  1. Atkinson, S., Baird, S. and Frye, A. (2003) Do female mutual fund managers manage differently? Journal of Financial Research XXVI (1): 1–18.CrossRefGoogle Scholar
  2. Baks, K. (2003) On the Performance of Mutual Fund Managers. Working Paper.Google Scholar
  3. Berk, J. and Green, R. (2004) Mutual fund flows and performance in rational markets. Journal of Political Economy 112 (6): 1269–1295.CrossRefGoogle Scholar
  4. Bessler, W., Blake, D., Lueckoff, P. and Tonks, I. (2010) Why Does Mutual Fund Performance Not Persist? The Impact and Interaction of Fund Flows and Manager Changes. Working Paper.Google Scholar
  5. Carhart, M. (1997) On persistence in mutual fund performance. Journal of Finance 52 (1): 57–82.CrossRefGoogle Scholar
  6. Chevalier, J. and Ellison, G. (1999) Are some mutual fund managers better than others? Cross-sectional patterns in behavior and performance. Journal of Finance 54 (3): 875–899.CrossRefGoogle Scholar
  7. Davis, J. (2001) Mutual fund performance and manager style. Financial Analysts Journal 57 (1): 19–27.CrossRefGoogle Scholar
  8. Fama, E. and French, K. (1993) Common risk factors in the return on bonds and stocks. Journal of Financial Economics 33 (1): 3–56.CrossRefGoogle Scholar
  9. Grossman, S. and Stiglitz, J. (1980) On the impossibility of informationally efficient markets. American Economic Review 70 (3): 393–408.Google Scholar
  10. Gruber, M. (1996) Another puzzle: The growth in actively managed mutual funds. Journal of Finance 51 (3): 783–810.CrossRefGoogle Scholar
  11. Jain, P. and Wu, J. (2000) Truth in mutual fund advertising: Evidence of future performance and fund flows. Journal of Finance 55 (2): 937–958.CrossRefGoogle Scholar
  12. Jensen, M. (1968) The performance of mutual funds in the period 1945–1964. Journal of Finance 23 (2): 389–416.CrossRefGoogle Scholar
  13. Kaushik, A., Pennathur, A . and Barnhart, S. (2010) Market timing and the determinants of performance of sector funds over the business cycle. Managerial Finance 36 (7): 583–602.CrossRefGoogle Scholar
  14. Malkiel, B. (1995) Returns from investing in equity mutual funds 1971 to 1991. Journal of Finance 50 (2): 549–572.CrossRefGoogle Scholar
  15. Pollet, J. and Wilson, M. (2008) How does size affect mutual fund behavior? Journal of Finance 63 (6): 2941–2969.CrossRefGoogle Scholar
  16. Sapp, T. and Tiwari, A. (2004) Does stock return momentum explain the ‘smart money’ effect? Journal of Finance 59 (6): 2605–2622.CrossRefGoogle Scholar
  17. Sharpe, W. (1964) Capital asset prices: A theory of market equilibrium under conditions of risk. Journal of Finance 19 (3): 425–442.Google Scholar
  18. Sirri, R. and Tufano, P. (1998) Costly search and mutual fund flows. Journal of Finance 53 (5): 1589–1622.CrossRefGoogle Scholar
  19. Wermers, R. (1997) Momentum Investment Strategies of Mutual Funds, Performance Persistence, and Survivorship Bias. Working Paper.Google Scholar
  20. Wermers, R. (2000) Mutual fund performance: An empirical decomposition into stock-picking talent, style, transactions costs, and expenses. Journal of Finance 55 (4): 1655–1695.CrossRefGoogle Scholar
  21. Zheng, L. (1999) Is money smart? A study of mutual fund investors fund selection ability. Journal of Finance 54 (3): 901–933.CrossRefGoogle Scholar

Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Ltd 2012

Authors and Affiliations

  1. 1.Department of AccountingFinance and Business Law, Radford UniversityVirginiaUSA

Personalised recommendations