Discussion Paper Details

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Title: Investor-Stock Decoupling in Mutual Funds

Author(s): Miguel Ferreira, Massimo Massa and Pedro Pinto Matos

Publication Date: August 2016

Keyword(s): Fund flows, Limits to Arbitrage, Mutual funds, Performance and Risk Taking

Programme Area(s): Financial Economics

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.

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Bibliographic Reference

Ferreira, M, Massa, M and Matos, P. 2016. 'Investor-Stock Decoupling in Mutual Funds'. London, Centre for Economic Policy Research.