Essays on mutual funds

Summary In Test 1, we clearly demonstrate that the flow-performance relationship is convex, but only in the medium to high performance range. We show that it is in fact concave in the low to medium performance range. The main finding of Trial 3 is that the composition of the fund's portfolio has an impact on the fund's flow-performance sensitivity (FPS). Specifically, a mutual fund manager can reduce flow performance sensitivity by increasing the total equity portfolio weighting in defensive and sensitive stocks, where the former is more efficient. In Essay 2, I examine the active equity mutual funds that most closely approximate new investors. This stock is surprising by its very nature. It is a form of turning away paying customers that results in lost revenue, at least in the short run. I show that the performance of funds close to new investors declines as sharply as that of funds of comparable size and past performance that remain open.