Costly Search and Mutual Fund Flows

1998/10/01 by Erik R. Sirri, Peter Tufano · 3,421 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Auditing, Earnings Management, Governance #Business #Closed-end fund #Computer science #Corporate Finance and Governance #Economics #Equity (law) #Finance #Financial Markets and Investment Strategies #Fund administration #Fund of funds #Income fund #Index fund #Institutional investor #Manager of managers fund #Mutual fund #Open-end fund #Political science #Salient #Target date fund

paper · doi:10.1111/0022-1082.00066

published in The Journal of Finance 53(5), 1589-1622 (Wiley)

openalex publication_date 1998/10/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/05

Abstract

This paper studies the flows of funds into and out of equity mutual funds. Consumers base their fund purchase decisions on prior performance information, but do so asymmetrically, investing disproportionately more in funds that performed very well the prior period. Search costs seem to be an important determinant of fund flows. High performance appears to be most salient for funds that exert higher marketing effort, as measured by higher fees. Flows are directly related to the size of the fund's complex as well as the current media attention received by the fund, which lower consumers' search costs.

Citations

• Risk, Return, and Equilibrium: Empirical Tests
• Of Tournaments and Temptations: An Analysis of Managerial Incentives in the Mutual Fund Industry

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