Financial Markets and Investment Strategies
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Abstract
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)
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@article{Bessembinder2026Mutual,
title = {Mutual Fund Flows at Long Horizons},
author = {Hendrik Bessembinder and Shuaiyu Chen and Michael J. Cooper and Jinming Xue and Feng Zhang},
journal = {Review of Financial Studies},
year = {2026},
doi = {10.1093/rfs/hhag059},
url = {https://doi.org/10.1093/rfs/hhag059}
}FAQ
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