An Evaluation of the Impact that Distribution Channels Have on Mutual Fund Flows
College
College of Business Administration
Department
Accounting, Finance & Economics
Abstract
The efficient market hypothesis (EMH) states that an efficient market will price securities appropriately because they reflect all available and relevant information. In saying this, the investment theory suggests that investors are rational and will seek investments that will provide the highest return for a given level of risk – however, this is not always the case. In reality, investors lack the financial sophistication to properly evaluate the various securities that are offered in the financial market. This study evaluates information asymmetry within mutual fund distribution channels, to examine the concept of mutual fund managers, brokers, and financial advisers being incentivized for specific transactions. In a situation where there is asymmetric information, there is an opportunity for the more knowledgeable party to take advantage of the less knowledgeable. In assessing investor behavior, this thesis presents flow findings from U.S. equity mutual funds within various distribution channels, particularly during times of volatility. The analysis will compare their funds’ relative returns against the performance of the market and yield results for investor behavior.
Honors Thesis Committee
Philip Gibson, Ph.D.; Yuanshan Cheng, Ph.D.; and Charles Alvis, M.B.A.
Start Date
20-4-2018 2:45 PM
An Evaluation of the Impact that Distribution Channels Have on Mutual Fund Flows
DIGS 114
The efficient market hypothesis (EMH) states that an efficient market will price securities appropriately because they reflect all available and relevant information. In saying this, the investment theory suggests that investors are rational and will seek investments that will provide the highest return for a given level of risk – however, this is not always the case. In reality, investors lack the financial sophistication to properly evaluate the various securities that are offered in the financial market. This study evaluates information asymmetry within mutual fund distribution channels, to examine the concept of mutual fund managers, brokers, and financial advisers being incentivized for specific transactions. In a situation where there is asymmetric information, there is an opportunity for the more knowledgeable party to take advantage of the less knowledgeable. In assessing investor behavior, this thesis presents flow findings from U.S. equity mutual funds within various distribution channels, particularly during times of volatility. The analysis will compare their funds’ relative returns against the performance of the market and yield results for investor behavior.
