ABSTRACTThis dissertation consists of three essays on mutual funds. I first discuss the flow of active ETFs. And then I focus on the... Show moreABSTRACTThis dissertation consists of three essays on mutual funds. I first discuss the flow of active ETFs. And then I focus on the performance of mutual funds. Finally, I evaluate the timing ability of mutual fund investors.Using a data set from 2000 to 2016, this thesis first studies the behavior of active ETF investors from the perspective of fund flows. The results show that the investors chase past returns as they do for mutual funds. Furthermore, I find that the return-chasing behavior can be influence by other considerations, such as fee changes. However, the evidence of performance persistence is weak for active ETFs. Therefore, I propose that the return-chasing behavior is not smart, and the flows of active ETFs instead behave more like “dumb money”, which are demonstrated by the data.I continue to study the performance of the mutual funds. To avoid the bias caused by pricing models themselves, I introduce a model-independent method to assess the mutual fund performance relative to the portfolios constructed by ordinary investors, assuming they are following a naive strategy. Using a data set from October 1984 to September 2017, I find that the majority of mutual funds have higher buy-and-hold returns than the T-bill returns as well as the market returns in the long run. And employing the model-independent measure of performance, I find that the mutual fund industry creates value for individual investors for that mutual funds on average exceed the performance of the majority of the portfolios constructed by the investors selecting stocks randomly.To measure the timing ability of mutual fund investors, I use the difference between the internal rate of return realized by investors and the buy-and-hold return of the funds. Different from the existing literature, I modify the cash flows used to generate the internal rate of return, in which way I can capture the realized return of investors more accurately. I find that investors show timing skills in short horizon. And on average, investors of mutual funds have worse timing skills than those of ETFs. And compared with active fund investors, passive fund investors have better timing skills. I also find that investors who simply chase past winners would show worse timing skills. Show less
