What are the main determinants for selecting mutual funds?

Abstract

This paper analyses which factors determine money flows into mutual funds. The sample covers Icelandic mutual funds from 1992 to 2005. The main result is that investors chase past performance, both defined within investment category and overall. If relative performance of a fund increases by 0.1 (on a scale from 0 to 1) future net inflow increases by 5% on average. The relationship between past performance and current flows is linear which is different to what has been found for US mutual funds. The relationship between total cost and risk and net flows is insignificant.