On the behavior of mutual fund investors and managers

This thesis investigates empirically and theoretically the behavior of mutual fund investors and managers. These two aspects are closely related to each other. Investors try to select funds that follow an optimal investment policy from their point of view, while fund managers are typically interested in maximizing net fund inflows. In the first part of the thesis, we analyze the determinants of mutual fund flows, concentrating on the impact of past performance on fund flows. In particular, we investigate the lag structure of the flow-performance relationship and the impact of different classification systems on fund flows. In the second part of the thesis, we study the strategic behavior of mutual fund managers. In this part, we first consider the impact of auto-correlation and cross-correlation in fund returns on statistical tests of risk taking by fund managers performed in the literature. Finally, in a two-period model, we study risk-taking incentives of mutual fund managers with ranking objectives and then empirically test the predictions of the model.