Loads and Investment Decisions

37 Pages Posted: 8 May 2010

See all articles by Marco A. Navone

Marco A. Navone

Finance Discipline Group - UTS Business School; Bocconi University - CAREFIN - Centre for Applied Research in Finance; Financial Research Network (FIRN)

Marco Pagani

San Jose State University

Date Written: January 22, 2009


In this paper, we analyze the effect of loads on the relationship between mutual fund performance and investment flows. Using a sample of US domestic non-industry-specific mutual funds from 1993 to 2006, we show that the presence of front loads increases the sensitivity of fund flows to less recent performance. We show that this effect is stronger for funds that experience positive net flows than for those with negative net flows. We also show that other kinds of distribution costs, like deferred loads and 12b-1 fees, do not generate the same effect. These two pieces of evidence suggest that investors, when faced with the necessity to incur an up-front cost for buying mutual fund shares, look for a stronger and more stable signal of managerial ability. We also document that this alteration in the investment behavior does not increase significantly the degree of money smartness of mutual fund flows.

Keywords: Mutual funds flow, brokerage services, loads

JEL Classification: G11, G14, G23

Suggested Citation

Navone, Marco A. and Pagani, Marco, Loads and Investment Decisions (January 22, 2009). CAREFIN Research Paper No. 2/09, Available at SSRN: https://ssrn.com/abstract=1600538

Marco A. Navone (Contact Author)

Finance Discipline Group - UTS Business School ( email )

Sydney, NSW 2007

Bocconi University - CAREFIN - Centre for Applied Research in Finance

Via Sarfatti, 25
Milan, 20136

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane

Marco Pagani

San Jose State University ( email )

San Jose, CA 95192-0066
United States
408-924-3477 (Phone)
408-924-3463 (Fax)

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