Factors Affecting the Birth and Fund Flows of CTAS

This paper investigates the birth of commodity trading advisors (CTAs) and their flow–performance relation. Specifically, we address three questions. First, we investigate the impact of existing CTAs' performance on the number of new CTAs entering the market. Second, we investigate the importance of performance and other fund-specific factors to fund flows throughout the entire lives of CTAs. Third, we examine the smart money effect on CTAs. That is, we ask whether investors are successful in selecting subsequent well performing CTAs. Our results show that CTA managers tend to start up funds after a period of poor performance across the CTA industry. The flow–performance relation is strongly supported, with top-performing CTAs rewarded with high inflows. However, we find no evidence of ‘smart money' effect, indicating that investors are generally unsuccessful in choosing subsequent well performing CTAs