Mutual Fund Flows at Long Horizons

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ID: 318930
2026
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Abstract
Abstract We show that positive flows to active mutual funds with high recent returns partially reverse at longer horizons. This outcome is robust across a broad range of alternative specifications. Reversal occurs from greater outflows associated with high prior returns, not reduced inflows. We test theories to explain the reversal: investment life cycles, tax loss selling, and a behavioral “disappointment” hypothesis based on investors’ overreaction to positive returns. While both tax loss selling and short investor life cycles can contribute, the evidence supports a role for investor disappointment, whereby investors redeem their capital when return performance fails to meet expectations. (JEL G10, G23)
Reference Key
openalex_W7166041107 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Hendrik Bessembinder, Shuaiyu Chen, Michael J. Cooper, Jinming Xue, Feng Zhang
Journal review of financial studies
Year 2026
DOI
10.1093/rfs/hhag059
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