Abstract
Distinguishing between switches, pre-authorized contributions, systematic withdrawal plans, reinvestments, and distributions, we find that different types of fund flow exhibit distinct characteristics to retail fund flow with respect to fund fees and past performance. We argue that the positive correlation between retail fund inflow and switch-out reflects information asymmetry between incoming investors and current unitholders. This information asymmetry is more common when fund series are sold through dealers or brokers. We further show that this information asymmetry, attributed to biased purchase advice, is negatively associated with fund performance. A large sample of proprietary data from 2003 to 2014 support our findings, including but not limited to results from funds that invest only in the US, and funds that invest worldwide.
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