The Study On Past Performance And Mutual Funds Flow In Different Stock Market Phases

In China, there is a fixed fee rate in the management fee income of fund management firm. Since fund investors tend to purchase funds with better historical performance, the firm has to enhance its fund performance and attract the investors' purchase in order to increase management asset scale. Futher this situation will be in a win-win situation, or there will be a conflict of interest between the fund management firm and investor. Consequently the healthy development of fund industry requires the Survival of the fittest role that a positive correlation relationship between the fund past performance and cash flows plays. However, it is still controversial whether the relationship between the fund past performance and cash flows is positive in China and whether the fund market exsits "Redemption Anomalies". Therefore, it is very necessary to study the relationship between fund performance and cash flows.Firstly, this paper reviews relevant theories and researches about the relationship between fund past performance and cash flows, then summarizes and compares the similarities and differences of these researches and analyzes the reasons of the different conclusions of researches on the "Redemption Anomalies". Because the open-end fund's main investment subject is stocks and the stock market phase will directly affect the investor's purchase and redemption and fund flows. Therefore, this paper researches the relationship of fund past performance and flows in different stock market phases. Secondly, by referring to the existing stock market phase division methods, the paper improved the non-parametric method and the division of the bull market and bear market phases in China's stock market. Finally, using the non-equilibrium panel regression model, the paper empirically analyses the relationship between fund past performance and flows in different stock market phases.Based on the data of Shanghai stock index and China's Open-end funds from 2004 to 2015, the empirical study finds that the fund lagged quarterly return have a significant positive effect on the net flows. And this shows the fund who got a better past performance can attract investors to purchase. And investors pay more attention on the fund past performance rather than risk, and they prefer smaller scale funds which belong to bigger fund companies. Moreover, there is significant asymmetry relationship between fund past performance and flows in different stock market phases. In bull market, the relationship between fund past performance and flows is significantly positive which means investors prefer better past performance, while in bear market, investors are not sensitive to the past performance of funds. The above results show that "Redemption Anomalies" of fund is not exsit in China.This research can not only explain the "redemption anomalies" of China's fund market and provide a new perspective for the relationship between fund past performance and cash flows, but also provide a new perspective for the management and development of the fund industry in China.