Performance Chasing, Fund Flows and Fund Size
in Real Estate Mutual Funds
Wen-Hsiu Chou & William G. Hardin III
Published online: 8 October 2013

Abstract

Real estate mutual funds have grown dramatically in number, size, scope and
assets under management over the last 15 years, but little assessment is evident. The
present study addresses this limitation. Better prior period performance is associated with
greater shares of fund inflows for a period. Returns, however, are negatively associated
with increased fund flows and fund size. Investors chase past performance limiting fund
managers’ ability to optimize investments. Under normal market conditions, but
departing fromtypicalmutual fund performance, real estatemutual fund returns generally
exceed relevant benchmarks on a before expenses basis and match benchmark returns
after expenses. The ability to meet and exceed benchmark returns, however, does not
hold during the financial crisis period. Overall, more established funds are hown to have
higher returns while fund turnover is not a determinant of returns.