New research by associate professor Thibaut Morillon explores how retail and institutional investors may use different measures when evaluating real estate mutual funds.
Thibaut Morillon, associate professor of finance in the Martha and Spencer Love School of Business, whose newest research investigates which performance measures retail and institutional investors use when evaluating real estate mutual funds.
Investors often look at past performance when deciding where to put their money. New research by Morillon and his co-authors examines whether retail and institutional investors respond to the same measures of fund performance.
The co-authored article, “What Performance Measures Do Real Estate Mutual Fund Investors Chase?”, looks at several ways of measuring real estate mutual fund performance, from straightforward returns and Morningstar ratings to more complex measures that account for investment risk.
Using real estate mutual fund data from 1995 to 2022, the researchers compared those performance measures with subsequent fund flows to better understand which measures appear to be associated with investors’ allocation decisions.
Key Findings:
- Retail-oriented funds were most responsive to past returns, or how much the fund had gained or lost.
- Institutional investors appeared to look beyond simple returns and consider how much risk a fund took to achieve them.
- More complex ways of measuring fund performance appeared to have limited influence on the investment decisions of either group.
- The findings suggest retail and institutional investors may look at different information when evaluating real estate mutual funds.
- The research also considers how those investor preferences may affect the decisions fund managers make to attract investment.
“Students who see risk-adjusted performance measures for the first time reasonably ask whether anyone actually uses them. This paper is a useful answer,” said Morillon. “Institutional money does look past raw returns, retail money largely does not, and the more complex measures move very little capital either way. A measure only matters if someone is trading on it.”
The article was published in The Journal of Real Estate Finance and Economics with co-authors Ryan G. Chacon at the University of Denver, William G. Hardin III at Florida International University and Pratik Kothari at Oakland University.
Morillon joined Elon University in 2019. His research interests include real estate, mergers and acquisitions, international finance, corporate governance and emerging financial technologies. His recent work has also explored the use of artificial intelligence and large language models in commercial real estate.
He received the Love School of Business Dean’s Award for Excellence in Scholarship in 2022 and has earned multiple awards for his research, including the American Real Estate Society’s Best Practitioner Research Prize and two Emerald Literati Outstanding Paper Awards.