Finance Seminar（2014-29）

Topic: On the Flow-Performance Relations among Delegated Institutional Portfolios

Speaker: Tong Yao, University of Iowa

Time: Wednesday, 15 October, 10:00-11:30

Location: Room 217,Guanghua Building 2

Abstract: We examine how fund flows are related to both past and future performance of institutional funds, i.e., delegated portfolios catering to plan sponsors such as pensions and nonprofit organizations. Our analysis takes into account several features of the institutional fund market that sets it apart from the retail mutual fund market, as well as heterogeneity across funds. We find that institutional fund flows are sensitive to past performance, and plan sponsors flee from poorly performing funds as much as they flock to well-performing funds. However, plan sponsors do not exhibit any ability to pick funds that can outperform subsequently. If any, institutional funds receiving larger inflows tend to generate worse performance, especially at long horizons. We also find many portfolio characteristics affecting the flow-performance relations, providing an opportunity to evaluate three effects proposed in the existing literature{namely, learning, participation costs, and illiquidity externality.