Title: The factor structure of mutual fund flows

Authors: Wayne E. Ferson; Min S. Kim

Addresses: Marshall School of Business, University of Southern California, 3670 Trousdale Parkway Suite 308, 90089-0804, Los Angeles, CA, USA. ' Level 3, Australian School of Business, University of New South Wales, 2052, Sydney, NSW, Australia

Abstract: Common factors in mutual fund flows explain significant fractions of annual and quarterly flows to individual US mutual funds. The factors are persistent and correlated with financial market conditions and macroeconomic variables. We find evidence that the common factors in investor flows are forward looking, although subject to frictions. The systematic components of flows differ substantially across funds according to funds' 'flow betas'. High-performing funds' common factor flows bear an option-like relation to the aggregate sector flows, suggesting a new dimension in the incentives of fund managers. High flow beta funds offer low subsequent returns, consistent with adverse price pressure effects.

Keywords: mutual fund flows; common flow factors; flow beta; asymptotic principal components; fire sales; mutual funds; investor flows; principal component analysis; PCA.

DOI: 10.1504/IJPAM.2012.049214

International Journal of Portfolio Analysis and Management, 2012 Vol.1 No.2, pp.112 - 143

Published online: 23 Aug 2014 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article