Does Motivation Matter When Assessing Trade Performance? An Analysis of Mutual Funds
Top Cited Papers
- 22 June 2006
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 20 (1) , 125-150
- https://doi.org/10.1093/rfs/hhl008
Abstract
We relate the performance of mutual fund trades to their motivation. A fund manager who buys stocks when there are heavy investor outflows is likely to be motivated by the belief that the stocks are significantly undervalued. In contrast, when there are heavy inflows, the manager is likely to be motivated to work off excess liquidity by buying stocks. Our analysis reveals that managers making purely valuation-motivated purchases substantially beat the market but are unable to do so when compelled to invest excess cash from investor inflows. A similar, but weaker, pattern is found for stocks that are sold. (JEL G11, G29)Keywords
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