Mutual Fund Flows and Extrapolative Investors' Expectations

Download or read book Mutual Fund Flows and Extrapolative Investors' Expectations written by Wolfgang Breuer and published by . This book was released on 2007 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper the relation between aggregate mutual fund flows and stock market returns is analysed with respect to three issues. First, we study the relation between fund flows and long-term realized returns (past, current and future). Second, we find out that fund flows are not driven by fundamentally expected returns. Mutual fund investors appear to have naive expectations, as it seems that they just extrapolate past price trends into the future. This leads to a substantial performance loss of more than one percentage point per year. Third, the firstly presented results of the German fund market resemble those of the US market. Differences between the two fund markets do not seem to influence investor behaviour.