Which Factors Matter to Investors? Evidence from Mutual Fund Flows
نویسندگان
چکیده
When assessing a fund manager’s skill, sophisticated investors will consider all factors (priced and unpriced) that explain cross-sectional variation in fund performance. We investigate which factors investors attend to by analyzing mutual fund flows as a function of recent returns. Investors attend most to market risk (beta), but treat returns attributable to size, value, momentum, and industry factors as alpha. Flows of direct-sold funds—whose investors are likely more sophisticated than those of broker-sold funds— are less responsive to factor-related returns, which suggests sophisticated investors are aware that factor-related returns are not indicative of managerial skill.
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