George D. Cashman

Investor Behavior in the Mutual Fund Industry: Evidence from Gross Flows

Using a large sample of monthly gross flows from 1997 to 2003, we uncover several previously undocumented regularities in investor behavior. First, investor purchases and sales produce fund-level gross flows that are highly persistent. Persistence in fund flows dominates performance as a predictor of future fund flows. More importantly, failing to account for flow persistence leads to incorrect inferences with respect to the relation between performance and flows. Second, we document that investors react differently to performance depending on the type of fund, and that investor trading activity produces meaningful differences in the persistence of fund flows across mutual fund types. Third, at least some investors appear to evaluate and respond to mutual fund performance over much shorter time spans than previously assessed. Additionally, we document differences in the speed and magnitude of investors’ purchase and sales responses to performance.

Investors Do Respond to Poor Mutual Fund Performance: Evidence from Inflows and Outflows

We examine the relation between mutual fund performance and gross flows for a large sample of actively managed U.S. mutual funds. Unlike previous studies that have only examined periods of generally increasing net flows, our sample includes periods of both increasing and decreasing net flows. We find that outflows are related to performance, with investors withdrawing money from poor performers. We also find that outflows and inflows respond asymmetrically to performance, outflows increase more aggressively following poor performance, and inflows increase more aggressively following good performance. Additionally, we find a symmetric performance net flow relation.

Human and Social Capital in the Labor Market for Directors

Abstract Purpose This study examines the director labor market to better understand which director attributes are important for board service. Design/Methodology/Approach Director level data, which includes proxies for both human and social capital, is analyzed to determine which characteristics increase the likelihood of gaining additional board appointments. Findings We find that general skills and director connections are valued in the marketplace. Among specific director characteristics, financial expertise, holding an MBA degree, and S&P 500 experience are positively associated with gaining new board appointments. Moreover, regardless of the director’s level of expertise, highly connected individuals are more likely to obtain new appointments. Finally, from a range of characteristics, only director connections mitigate the negative consequences of serving on the boards of firms that restate their financials. Originality/Value While most research has analyzed the effectiveness of boards of directors as a whole, this study examines the value of individual director characteristics within the context of the labor market.

Network Connections in REIT Markets

Relationships play a central role across the spectrum of real estate transactions. Whether negotiating prices, securing funding, or acquiring permits, knowing the right people provides multiple channels to facilitate deal making. To better understand the role of relationships in real estate markets, we examine how the connectedness of REIT directors is associated with deal making, growth, and profitability. We find strong evidence that REIT connections are positively associated with both deal making and accounting based measures of profitability, however, those relations do not translate into better market returns or higher valuations. One explanation of these somewhat contradictory results is that connections also increase firm risk. Preliminary support for this conjecture is found through our examination of each firm’s implied cost of equity capital. Specifically, we find increasing connectedness is associated with a higher cost of equity capital. Thus, connections appear to offer both advantages and disadvantages to REIT managers and shareholders.