It's not that open-end mutual fund managers aren't clever, says Roger M. Edelen, Ph.D in an article in the summer issue of the Journal of Investment Consulting. Edelen says that the tendency of open-end mutual funds toward underperformance can be attributed to the costs of providing liquidity to investors.

Edelen's paper, titled "The Impact of Flow on Mutual Fund Performance," examines the indirect costs of providing liquidity to investors and documents a statistically significant negative relationship between a fund's abnormal return and investor flows.

The article is in the Journal of Investment Consulting, Volume 7, Number 1, Summer 2004. The Journal is published by the Investment Management Consultants Association.  

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