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Mutual Fund Flows and Performance in Rational Markets
Abstract
We develop a simple rational model of active portfolio management that provides a natural benchmark against which to evaluate observed relationship between returns and fund flows. We show that many effects widely regarded as anomalous are consistent with this simple explanation. In the model, investments with active managers do not outperform passive benchmarks because of the competitive market for capital provision, combined with decreasing returns to scale in active portfolio management. Consequently, past performance cannot be used to predict future returns, or to infer the average skill level of active managers. The lack of persistence in active manager returns does not imply that differential ability across managers is nonexistent or unrewarded, that gathering information about performance is socially wasteful, or that chasing performance is pointless. A strong relationship between past performance and the ow of funds exists in our model, indeed this is the market mechanism that ensures that no predictability in performance exists. Calibrating the model to the fund flows and survivorship rates, we find these features of the data are consistent with the vast majority (80%) of active managers having at least enough skill to make back their fees.
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“If the market was largely comprised of the investors of Berk and Green (2004) who solely maximized prots, these investors who did not value sustainability would undo the eects of investors with a preference for sustainability, resulting in zero net ows.”
From Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows (2019) · cites this paper as Berk and Green 2004
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In the citing paper
“If a small subset of investors had strong preferences for sustainability while most investors did not directly value sustainability, under standard models (e.g.Berk and Green 2004) we would not nd an eect of the ratings on net ows.”
From Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows (2019) · cites this paper as Berk and Green 2004
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“Berk and Green (2004) assume that funds have decreasing returns to scale which is empirically supported by the ndings of Grinblatt and Titman (1989), Chen et al. (2004), Pástor et al. (2015) (though Reuter and Zitzewitz (2010) do not nd such an eect).”
From Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows (2019) · cites this paper as Berk and Green (2004)
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Citations
Cites
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“…a number of papers have used DEA to measure firm efficiency (e.g., Thore et al. 1994; Murthi et al. 1996; Murthi et al. 1997; Barr and Siems 1997; Berk and Green 2004; Berk and Stanton 2007; Leverty and Grace 2011), we are the first to measure efficiency for a large cross-section of firms,…”
BackgroundMethodLuck versus Skill in the Cross‐Section of Mutual Fund Returns
Fama, E. F., & French, K. R. (2010) · The Journal of Finance · doi:10.1111/j.1540-6261.2010.01598.x · Cited by 1,738
“Thus, for percentiles above the 90th, the CAPM t(α) Luck versus Skill in Mutual Fund Returns 1945 Table AI Percentiles of CAPM t(α) Estimates for Actual and Simulated Fund Returns The table shows values of t(α) at selected percentiles (Pct) of the distribution of CAPM t(α) estimates for actual (Act) net and gross fund…”
InfluentialAsset Fire Sales (and Purchases) in Equity Markets
Coval, J. D., & Stafford, E. (2005) · Journal of Financial Economics · doi:10.1016/j.jfineco.2006.09.007 · Cited by 1,602
How Active Is Your Fund Manager? A New Measure That Predicts Performance
Cremers, M., & Petäjistö, A. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhp057 · Cited by 1,574
Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows
HARTZMARK, S. M., & SUSSMAN, A. B. (2019) · The Journal of Finance · doi:10.1111/jofi.12841 · Cited by 1,711
The Small World of Investing: Board Connections and Mutual Fund Returns
Cohen, L. H., Frazzini, A., & Malloy, C. J. (2008) · Journal of Political Economy · doi:10.1086/592415 · Cited by 1,237
On the Industry Concentration of Actively Managed Equity Mutual Funds
Kacperczyk, M. T., Sialm, C., & Zheng, L. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00785.x · Cited by 1,129
Can Mutual Fund “Stars” Really Pick Stocks? New Evidence from a Bootstrap Analysis
Kosowski, R. L., Timmermann, A., Wermers, R. R., & White, H. (2006) · The Journal of Finance · doi:10.1111/j.1540-6261.2006.01015.x · Cited by 1,024
Unobserved Actions of Mutual Funds
Kacperczyk, M. T., Sialm, C., & Zheng, L. (2006) · Review of Financial Studies · doi:10.1093/rfs/hhl041 · Cited by 792
Measuring skill in the mutual fund industry
Berk, J. B., & van Binsbergen, J. H. (2015) · Journal of Financial Economics · doi:10.1016/j.jfineco.2015.05.002 · Cited by 820
“Because the average fee does not differ by much across deciles, it is investors that determine these compensation differences (by choosing to allocate their capital to skilled managers), confirming a central insight in Berk and Green (2004).”
BackgroundResultInfluentialSelf-citationMutual Fund Attributes and Investor Behavior
Bollen, N. P. B. (2007) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109000004142 · Cited by 785
“…that some fund managers may be able to exploit on a consistent basis to generate superior returns.1 Ippolito (1992), Lynch and Musto (2003), and Berk and Green (2004), among others, interpret the flow-performance relation as a reflection of investors 1For examples of stock market anomalies,…”
BackgroundInfluentialPayoff complementarities and financial fragility: Evidence from mutual fund outflows
Chen, Q., Itay Goldstein, B., & Jiang, W. (2010) · Journal of Financial Economics · doi:10.1016/j.jfineco.2010.03.016 · Cited by 704
“Second, according to Berk and Green (2004), the lack of persistence in the returns of open-end funds might not be indicative of the lack of persistence in the quality of the managers because the response of flow to performance affects future performance when there are decreasing returns to scale in asset management.”
BackgroundInfluentialThe Economics of Private Equity Funds
Metrick, A., & Yasuda, A. (2010) · Review of Financial Studies · doi:10.1093/rfs/hhq020 · Cited by 671
False Discoveries in Mutual Fund Performance: Measuring Luck in Estimated Alphas
BARRAS, L., SCAILLET, O., & WERMERS, R. (2010) · The Journal of Finance · doi:10.1111/j.1540-6261.2009.01527.x · Cited by 825
“(5) To select λ∗, we use the simple data-driven approach suggested by Storey (2002) and explained in detail in Appendix A. Substituting the estimate bπ0 in Equations (2), (3), and replacing E(S+γ ) with the observed proportion of significant funds in the right tail, bS+γ , we can easily estimate E(F+γ ) and E(T + γ )…”
InfluentialHedge Funds: Performance, Risk, and Capital Formation
Fung, W. K. H., Hsieh, D. A., Naik, N. Y., & Ramadorai, T. (2008) · The Journal of Finance · doi:10.1111/j.1540-6261.2008.01374.x · Cited by 660
Short-Term Persistence in Mutual Fund Performance
Bollen, N. P. B., & Busse, J. A. (2004) · Review of Financial Studies · doi:10.1093/rfs/hhi007 · Cited by 651
“managers to possess an informational advantage, but over what horizon? Berk and Green (2004) show theoretically that a fund manager’s informational advantage will be short-lived when investors direct their capital to recent winners. The goal of this article, therefore, is to determine empirically whether ability persi…”
BackgroundInfluentialVissing‐Jørgensen, A. (2003) · NBER Macroeconomics Annual · doi:10.1086/ma.18.3585252 · Cited by 776
Scale and skill in active management
Pástor, Ľ., Stambaugh, R. F., & Taylor, L. A. (2015) · Journal of Financial Economics · doi:10.1016/j.jfineco.2014.11.008 · Cited by 547
Gennaioli, N., Shleifer, A., & Vishny, R. W. (2014) · The Journal of Finance · doi:10.1111/jofi.12188 · Cited by 567
Assessing Asset Pricing Models Using Revealed Preference
Berk, J., & van Binsbergen, J. H. (2013) · Journal of Financial Economics · doi:10.1016/j.jfineco.2015.08.010 · Cited by 561
Self-citationParticipation Costs and the Sensitivity of Fund Flows to Past Performance
Huang, J. C., Wei, K. D., & Yan, H. (2007) · The Journal of Finance · doi:10.1111/j.1540-6261.2007.01236.x · Cited by 537
“This independence result and the fact that holdings are linear and increasing in past performance are common to CARA-normal models with learning about managerial ability; see, for example, Berk and Green (2004) and Lynch and Musto (2003).”
InfluentialWhat Risk Factors Matter to Investors? Evidence from Mutual Fund Flows
Barber, B. M., Huang, X., & Terrance Odean, B. (2014) · Review of Financial Studies · doi:10.1093/rfs/hhw054 · Cited by 527
Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds
Choi, J. J., Laibson, D., & Madrian, B. C. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhp097 · Cited by 495
“…fund investors chase past returns (Ippolito, 1992; Hendricks, Patel, and Zeckhauser, 1993; Chevalier and Ellison, 1997; Sirri and Tufano, 1998), but the rationality of such behavior is a subject of debate (Gruber, 1996; Carhart, 1997; Zheng, 1999; Sapp and Tiwari, 2004; Berk and Green, 2004).”
BackgroundThe Relation between Price and Performance in the Mutual Fund Industry
Gil‐Bazo, J., & Ruiz‐Verdú, P. (2009) · The Journal of Finance · doi:10.1111/j.1540-6261.2009.01497.x · Cited by 531
Investing in Socially Responsible Mutual Funds
Geczy, C. C., Stambaugh, R. F., & Levin, D. (2021) · The Review of Asset Pricing Studies · doi:10.1093/rapstu/raab004 · Cited by 486
Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry
Bergstresser, D., Chalmers, J. M. R., & Tufano, P. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhp022 · Cited by 604
Role of Managerial Incentives and Discretion in Hedge Fund Performance
AGARWAL, V., DANIEL, N. D., & NAIK, N. Y. (2009) · The Journal of Finance · doi:10.1111/j.1540-6261.2009.01499.x · Cited by 688
Mutual Fund's R 2 as Predictor of Performance
Yakov Amihud, A., & Goyenko, R. Y. (2012) · Review of Financial Studies · doi:10.1093/rfs/hhs182 · Cited by 477
Renneboog, L. D. R., ter Horst, J., & Zhang, C. (2010) · Journal of Financial Intermediation · doi:10.1016/j.jfi.2010.12.003 · Cited by 472
Kim, S., & Yoon, A. S. (2022) · Management Science · doi:10.1287/mnsc.2022.4394 · Cited by 450
“Our finding of no improvement in fund returns remain unchanged when we add log(Fund Size) to control for diseconomies of scale (Berk and Green 2004), and when we use Fund Return as an alternative dependent variable.”
Greenwood, R. M., & Scharfstein, D. S. (2013) · The Journal of Economic Perspectives · doi:10.1257/jep.27.2.3 · Cited by 452
Behavioral biases of mutual fund investors
Bailey, W. B., Kumar, A., & Ng, D. T. (2011) · Journal of Financial Economics · doi:10.1016/j.jfineco.2011.05.002 · Cited by 455
Household Finance: An Emerging Field
Guiso, L., & Sodini, P. (2013) · Handbook of the economics of finance · doi:10.1016/b978-0-44-459406-8.00021-4 · Cited by 447
Risk Shifting and Mutual Fund Performance
Huang, J. C., Sialm, C., & Zhang, H. (2011) · Review of Financial Studies · doi:10.1093/rfs/hhr001 · Cited by 466
“Studying the performance consequences of risk shifting (1)The literature on the investment ability of mutual fund managers includes Treynor and Mazuy (1966), Jensen (1968), Henriksson and Merton (1981), Grinblatt and Titman (1993), Brown and Goetzmann (1995), Ferson and Schadt (1996), Carhart (1997), Busse (1999), Dan…”
The Interim Trading Skills of Institutional Investors
Puckett, A., & Yan, X. S. (2011) · The Journal of Finance · doi:10.1111/j.1540-6261.2010.01643.x · Cited by 415
Fund Manager Use of Public Information: New Evidence on Managerial Skills
Kacperczyk, M. T., & Seru, A. (2007) · The Journal of Finance · doi:10.1111/j.1540-6261.2007.01215.x · Cited by 416
The Determinants of Mutual Fund Performance: A Cross-Country Study
Ferreira, M. A. M. M., Keswani, A., Miguel, A. F., & Ramos, S. B. (2011) · European Finance Review · doi:10.1093/rof/rfs013 · Cited by 461
“Large funds, however, face some problems and management challenges and the scaleability of investments is determinant for the persistence of fund performance (e.g. Gruber (1996) and Berk and Green (2004)).”
Jonsson, S., Greve, H. R., & Fujiwara‐Greve, T. (2009) · Administrative Science Quarterly · doi:10.2189/asqu.2009.54.2.195 · Cited by 412
How Does Size Affect Mutual Fund Behavior?
Pollet, J. M., & Wilson, M. I. (2008) · The Journal of Finance · doi:10.1111/j.1540-6261.2008.01417.x · Cited by 408
Mutual Fund Performance and the Incentive to Generate Alpha
Guercio, D. D., & Reuter, J. (2013) · The Journal of Finance · doi:10.1111/jofi.12048 · Cited by 389
Changing Names with Style: Mutual Fund Name Changes and Their Effects on Fund Flows
COOPER, M. J., GULEN, H., & RAU, P. R. (2005) · The Journal of Finance · doi:10.1111/j.1540-6261.2005.00818.x · Cited by 472
The Gambler's and Hot-Hand Fallacies: Theory and Applications
Rabin, M., & Vayanos, D. (2009) · The Review of Economic Studies · doi:10.1111/j.1467-937x.2009.00582.x · Cited by 371
Assessing Asset Pricing Models Using Revealed Preference
Berk, J., & van Binsbergen, J. H. (2014) · National Bureau of Economic Research · doi:10.3386/w20435 · Cited by 390
Self-citationLimits to arbitrage and hedging: Evidence from commodity markets
Acharya, V. V., Lochstoer, L. A., & Ramadorai, T. (2013) · Journal of Financial Economics · doi:10.1016/j.jfineco.2013.03.003 · Cited by 371
Infrequent Portfolio Decisions: A Solution to the Forward Discount Puzzle
Bacchetta, P., & van Wincoop, E. (2010) · American Economic Review · doi:10.1257/aer.100.3.870 · Cited by 368
Asset Prices and Institutional Investors
Basak, S., & Pavlova, A. (2013) · American Economic Review · doi:10.1257/aer.103.5.1728 · Cited by 359
Performance evaluation and self-designated benchmark indexes in the mutual fund industry
Sensoy, B. A. (2009) · Journal of Financial Economics · doi:10.1016/j.jfineco.2008.02.011 · Cited by 326
“First, another way to account for nonlinearities in the ow-performance relations is suggested by Berk and Green (2004), whose model of fund ows in a fully rational world with symmetric information implies that the optimal relation between ows and risk-adjusted returns is quadratic over a wide range.”
MethodIndexing and active fund management: International evidence
Cremers, M., Ferreira, M. A. M. M., Matos, P. P., & Starks, L. T. (2016) · Journal of Financial Economics · doi:10.1016/j.jfineco.2016.02.008 · Cited by 322
“Berk and Green (2004) and Pastor and Stambaugh (2012) argue that fund managers can have skill and investors invest in”
An Institutional Theory of Momentum and Reversal
Vayanos, D., & Woolley, P. (2013) · Review of Financial Studies · doi:10.1093/rfs/hht014 · Cited by 339
Pástor, Ľ., & Veronesi, P. (2009) · Annual Review of Financial Economics · doi:10.1146/annurev.financial.050808.114428 · Cited by 338
“Berk and Green (2004) show that these facts are consistent with rational learning.”
BackgroundDecentralized Mining in Centralized Pools
Cong, L. W., He, Z., & Li, J. (2020) · Review of Financial Studies · doi:10.1093/rfs/hhaa040 · Cited by 351
Financial Literacy, Portfolio Choice and Financial Well-Being
Chu, Z. Y., Wang, Z., Xiao, J. J., & Zhang, W. (2016) · Social Indicators Research · doi:10.1007/s11205-016-1309-2 · Cited by 353
“%) of active managers having at least enough skills to cover their fees (Berk & Green 2004).”
BackgroundResultOn the Industry Concentration of Actively Managed Equity Mutual Funds
Kacperczyk, M. T., Sialm, C., & Zheng, L. (2004) · National Bureau of Economic Research · doi:10.3386/w10770 · Cited by 326
Liquidity, Investment Style, and the Relation between Fund Size and Fund Performance
Yan, X. S. (2008) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109000004270 · Cited by 314
“More recently, Berk and Green (2004) develop a rational model of active fund management.”
Do the Best Hedge Funds Hedge?
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The flow-performance relationship around the world
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“This is because it will determine the degree to which fund size is affected by past performance which conditions how a fund performs in the future (Berk and Green (2004)).”
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What Do Mutual Fund Investors Really Care About?
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Equilibrium prices in the presence of delegated portfolio management
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Do Hedge Fund Managers Misreport Returns? Evidence from the Pooled Distribution
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What Do Consumers’ Fund Flows Maximize? Evidence from Their Brokers’ Incentives
Christoffersen, S. E. K., Evans, R. B., & Musto, D. K. (2012) · The Journal of Finance · doi:10.1111/j.1540-6261.2012.01798.x · Cited by 281
Optimal Asset Allocation and Risk Shifting in Money Management
Basak, S., Pavlova, A., & Shapiro, A. (2007) · Review of Financial Studies · doi:10.1093/rfs/hhm026 · Cited by 292
Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation
Hertzberg, A., Liberti, J. M., & Paravisini, D. (2010) · The Journal of Finance · doi:10.1111/j.1540-6261.2010.01553.x · Cited by 288
“In line with Berk and Green (2004), we expect that in equilibrium more assets are assigned to loan o¢ cers with higher perceived ability.”
BackgroundInfluentialBusiness Networks, Corporate Governance, and Contracting in the Mutual Fund Industry
Kuhnen, C. M. (2009) · The Journal of Finance · doi:10.1111/j.1540-6261.2009.01498.x · Cited by 251
Institutional investors and the limits of arbitrage
Lewellen, J. W. (2011) · Journal of Financial Economics · doi:10.1016/j.jfineco.2011.05.012 · Cited by 246
“For example, it supports Berk and Green’s (2004) contention that many stylized facts about mutual fund performance and flows are consistent with a rational, competitive mutual fund industry.”
BackgroundDo Private Equity Fund Managers Earn Their Fees? Compensation, Ownership, and Cash Flow Performance
Robinson, D. T., & Sensoy, B. A. (2012) · Review of Financial Studies · doi:10.1093/rfs/hht055 · Cited by 241
Internal Control and Operational Efficiency
Cheng, Q., Goh, B. W., & Kim, J. B. (2018) · Contemporary Accounting Research · doi:10.1111/1911-3846.12409 · Cited by 266
UK mutual fund performance: Skill or luck?
Cuthbertson, K., Nitzsche, D., & O’Sullivan, N. (2007) · Journal of Empirical Finance · doi:10.1016/j.jempfin.2007.09.005 · Cited by 263
WSJ Category Kings - The Impact of Media Attention on Consumer and Mutual Fund Investment Decisions
Kaniel, R., & Parham, R. (2015) · Journal of Financial Economics · doi:10.1016/j.jfineco.2016.11.003 · Cited by 238
Teo, M. (2009) · Review of Financial Studies · doi:10.1093/rfs/hhp007 · Cited by 228
“However, the decreasing returns to scale argument advanced in Goetzmann, Ingersoll, and Ross (2003), Berk and Green (2004), and Fung, Hsieh, Naik, and Ramadorai (2006) may apply”
What Matters to Individual Investors? Evidence from the Horse's Mouth
Choi, J. J., & Robertson, A. (2020) · The Journal of Finance · doi:10.1111/jofi.12895 · Cited by 237
“Regarding the assumptions of Berk and Green (2004), 46% of respondents agree or strongly agree that past returns are evidence of skill, but only 18% agree or strongly agree that there are decreasing returns to scale in active money management.”
InfluentialThe liquidity risk of liquid hedge funds
Teo, M. (2010) · Journal of Financial Economics · doi:10.1016/j.jfineco.2010.11.003 · Cited by 221
“19 The counter argument is that investors are smart but due to the diseconomies of scale envisaged by Berk and Green (2004), inflows only predict returns in the short term.”
BackgroundInfluentialDo Funds Make More When They Trade More?
Pástor, Ľ., Stambaugh, R. F., & Taylor, L. A. (2014) · The Journal of Finance · doi:10.1111/jofi.12509 · Cited by 228
The Road Less Traveled: Strategy Distinctiveness and Hedge Fund Performance
Sun, Z., Wang, A., & Lu, Z. K. (2011) · Review of Financial Studies · doi:10.1093/rfs/hhr092 · Cited by 234
“AUM is negatively associated with the future alpha, consistent with the notion of performance erosion due to increased scale in the mutual fund sector, as discussed in Berk and Green (2004) and Chen, Hong, Huang, and Kubik (2004).”
InfluentialDo Investment Banks Matter for M&A Returns?
Bao, J., & Edmans, A. (2011) · Review of Financial Studies · doi:10.1093/rfs/hhr014 · Cited by 226
“We refute this hypothesis by showing that the banks with the lowest average returns are not the most frequent advisors – the correlation between bank fixed effects and market share is an insignificant 0.03 (p-value of 0.72).”
InfluentialChan, N. T., Getmansky, M., Haas, S. M., & Lo, A. W. (2005) · National Bureau of Economic Research · doi:10.3386/w11200 · Cited by 224
Market impact and trading profile of hidden orders in stock markets
Moro, E., Vicente, J., Moyano, L. G., Gerig, A., Farmer, J. D., Vaglica, G., Lillo, F., & Mantegna, R. N. (2009) · Physical Review E · doi:10.1103/physreve.80.066102 · Cited by 220
Portfolio Manager Compensation in the U.S. Mutual Fund Industry
Ma, L., Tang, Y., & Gómez, J.-P. (2018) · The Journal of Finance · doi:10.1111/jofi.12749 · Cited by 237
Defined Contribution Pension Plans: Sticky or Discerning Money?
Sialm, C., Starks, L. T., & Zhang, H. (2014) · The Journal of Finance · doi:10.1111/jofi.12232 · Cited by 219
Sex Matters: Gender Bias in the Mutual Fund Industry
Niessen‐Ruenzi, A., & Ruenzi, S. (2018) · Management Science · doi:10.1287/mnsc.2017.2939 · Cited by 201
Conditional Return Smoothing in the Hedge Fund Industry
Bollen, N. P. B., & Pool, V. K. (2008) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109000003525 · Cited by 186
“In the spirit of Berk and Green (2004), it would be rational for investors with more diffuse prior beliefs of managerial ability to respond more quickly to performance. Investors with short or unpredictable investment horizons are undesirable from a hedge fund manager’s perspective, as they may limit her ability to ex…”
BackgroundInfluentialManagerial Ability, Compensation, and the Closed‐End Fund Discount
Berk, J., & Stanton, R. (2007) · The Journal of Finance · doi:10.1111/j.1540-6261.2007.01216.x · Cited by 194
Self-citationOn the Size of the Active Management Industry
Pástor, L., & Stambaugh, R. F. (2012) · Journal of Political Economy · doi:10.1086/667987 · Cited by 236
Pay for Performance from Future Fund Flows: The Case of Private Equity
Chung, J., Sensoy, B. A., Stern, L. H., & Weisbach, M. S. (2012) · Review of Financial Studies · doi:10.1093/rfs/hhr141 · Cited by 202
Investing in Talents: Manager Characteristics and Hedge Fund Performances
Li, H., Zhang, X., & Zhao, R. Z. (2010) · Journal of Financial and Quantitative Analysis · doi:10.1017/s0022109010000748 · Cited by 202
Informational Holdup and Performance Persistence in Venture Capital
Hochberg, Y. V., Ljungqvist, A. P., & Vissing‐Jørgensen, A. (2013) · Review of Financial Studies · doi:10.1093/rfs/hht046 · Cited by 201
“This implies that the “return-chasing” behavior emphasized by Berk and Green (2004) as the mechanism eliminating performance persistence in mutual funds breaks down in the VC setting when there is asymmetric learning.”
InfluentialInstitutional Investors and Mutual Fund Governance: Evidence from Retail–Institutional Fund Twins
Evans, R. B., & Fahlenbrach, R. (2012) · Review of Financial Studies · doi:10.1093/rfs/hhs105 · Cited by 189
Smith, E. B. (2011) · Administrative Science Quarterly · doi:10.2189/asqu.2011.56.1.061 · Cited by 197
“In studies of mutual and hedge fund industries, for instance, research has shown that fund age significantly attenuates the association between fund returns and investor capital flows in both positive and negative directions (Chevalier and Ellison, 1997; Berk and Green, 2004).”
Learning About CEO Ability and Stock Return Volatility
Pan, Y., Wang, T. Y., & Weisbach, M. S. (2015) · Review of Financial Studies · doi:10.1093/rfs/hhv014 · Cited by 191
Efficiently Inefficient Markets for Assets and Asset Management
Garleanu, N. B., & Pedersen, L. H. (2015) · The Journal of Finance · doi:10.1111/jofi.12696 · Cited by 186
Does Prior Performance Affect a Mutual Fund’s Choice of Risk? Theory and Further Empirical Evidence
Chen, H., & Pennacchi, G. (2009) · Journal of Financial and Quantitative Analysis · doi:10.1017/s002210900999010x · Cited by 188
“In addition, if managerial ability displays decreasing returns to scale, Berk and Green (2004) show that fund flows determine the relative sizes of mutual funds such that, in equilibrium, investors expect no future superior returns net of fund fees and expenses.”
BackgroundDoes Herding Behavior Reveal Skill? An Analysis of Mutual Fund Performance
Jiang, H., & Verardo, M. (2018) · The Journal of Finance · doi:10.1111/jofi.12699 · Cited by 188
Presidential Address: Investment Noise and Trends
Stambaugh, R. (2014) · The Journal of Finance · doi:10.1111/jofi.12174 · Cited by 148
Style effects in the cross-section of stock returns
Teo, M., & Woo, S.-J. (2004) · Journal of Financial Economics · doi:10.1016/j.jfineco.2003.10.003 · Cited by 176
“The sensitivity of the Bayesian persistence results to fund inflow resonates with the Berk and Green (2002) argument that fund inflows compete away managerial alpha.”
Incentives and Mutual Fund Performance: Higher Performance or Just Higher Risk Taking?
Massa, M., & Patgiri, R. (2008) · Review of Financial Studies · doi:10.1093/rfs/hhn023 · Cited by 177
“Consistent with the theory of Berk and Green (2004), we find that inflows have a negative impact on risk-adjusted returns.”
Ben‐David, I., Franzoni, F. A., & Moussawi, R. (2017) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-110716-032538 · Cited by 181
An Institutional Theory of Momentum and Reversal
Vayanos, D., & Woolley, P. (2008) · National Bureau of Economic Research · doi:10.3386/w14523 · Cited by 181
Exchange-Traded Funds 101 for Economists
Martin Lettau, A., & Madhavan, A. (2018) · The Journal of Economic Perspectives · doi:10.1257/jep.32.1.135 · Cited by 178
Portfolio concentration and performance of institutional investors worldwide
Choi, N. Y., Fedenia, M. A., Skiba, H., & Sokolyk, T. (2016) · Journal of Financial Economics · doi:10.1016/j.jfineco.2016.09.007 · Cited by 177
Metadata
- Authors
- Berk, J. B., & Green, R. C.
- Affiliations
- National Bureau of Economic Research (US)
- Carnegie Mellon University (US)
- ORCID
- Berk, Jonathan B.
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2004-12
- Volume
- 112
- Issue
- 6
- Pages
- 1269-1295
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- OpenAlex
- W3022326679
- Cited by
- 2,083
- References
- 16
- Citations by year
- 2026: 118 · 2025: 123 · 2024: 179 · 2023: 135 · 2022: 128 · 2021: 130 · 2020: 130 · 2019: 105 · 2018: 106 · 2017: 97 · 2016: 83 · 2015: 93 · 2014: 72 · 2013: 92 · 2012: 105
- FWCI
- 54.34
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Journal of Political Economy (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Financial Markets and Investment Strategies
- Social Sciences › Economics, Econometrics and Finance › Finance › Corporate Finance and Governance
- Social Sciences › Business, Management and Accounting › Accounting › Financial Analysis and Corporate Governance
- Keywords
- mutual fund flows, fund performance, active portfolio management, rational expectations, performance persistence, active vs passive investing, financial intermediaries, information aggregation
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