Business, College of


Date of this Version

September 2007


Published in Journal of Banking & Finance 31:9 (September 2007), pp. 2796–2816; doi 10.1016/j.jbankfin.2007.01.024 Copyright © 2007 Elsevier B.V. Used by permission.


We examine the timing ability of mutual fund investors using cash flow data at the individual fund level. Over 1991–2004, equity fund investor timing decisions reduce fund investor average returns by 1.56% annually. Underperformance due to poor timing is greater in load funds and funds with relatively large risk-adjusted returns. In particular, the magnitude of investor underperformance due to poor timing largely offsets the risk-adjusted alpha gains offered by good-performing funds. Investors in both actively managed funds and index funds exhibit poor investment timing. We demonstrate that our empirical results are consistent with investor return-chasing behavior.

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