We use an instrumental variables (IV) approach to examine the effects of dynamic
endogeneity when estimating the relationship between mutual fund flows and performance.
Unlike the one-stage estimation approach commonly used in prior research, the IV approach
allows us to address reverse causality between flow and performance. Through rigorous
exclusion tests, we conclude that fund media coverage, risk ranking, and management
structure win in a horse race as exogenous instruments for fund flow, while the fund turnover …