DP11476 Investor-Stock Decoupling in Mutual Funds
|Author(s):||Miguel Ferreira, Massimo Massa, Pedro Pinto Matos|
|Publication Date:||August 2016|
|Keyword(s):||Fund flows, Limits to Arbitrage, Mutual funds, Performance, Risk Taking|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=11476|
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.