An Empiricial Study On Factors Affecting Mutual Fund Flows

Investor can choose whether and when to purchanse or redeem any open-endfund.As mutual fund flow will have direct impacts on the size of each fund, so itis important for banks, mutual fund companies to analyze the pattern of mutualfund flow and factors affecting the fund flow.This paper consists of seven chapters, Chapter1is introduction andliterature review; Chapter2conclude that the individual mutual fund flow ismainly depended by market factors, fund characteristics and investment strategy,then build the index system of mutual fund flow; Time series analysis isconducted in Chapter3. From Chapter4-5, this paper focuses on the factorsaffecting mutual fund flow. As an innovation compared to other literature, thispaper uses the panel data model and VAR model to analyze the factors affectingthe fund flow of individual fund, total mutual fund, and total mutual fund withinspecific type.Time series analysis show that: first, the purchase behavior exhibitdependent tendency, which means that purchase amount is affected by previouspurchanse amount. Second, for the long term, the redeem amount of differenttype of mutual fund is stable, but highly dependent on the type of mutual fund.Investors tend to purchase stock type mutual fund other than other fund.This paper argues that the factos affecting the fund flow of individualmutual fund, total fund, total fund of specific type are different. Analyzing thefund flow of individual fund will discover the impact of fund specificcharacteristics on fund flow, and have practical value for fund managementcompanies; while analyzing the fund flow of total funds will focus on thecorrelation between fund market and stock market, and have implications forstock market supervision and investment; Analyzing the fund flow of specifictype of fund will discover the impact of investment type of fund in fund flow.These three dimension analysis help systematically understand mutual fund flow.Based on a panel-data model, Chapter4analyze the three factors affectingindividual mutual fund flow-market factors, fund characteristics and investment strategy, and we find the following results：(1) fund tends to flow out from themutual fund with higher current yield,which confirm that the redemptionanalomy existed in China market.(2) fund tends to flow into mutual funds withhigher ratio of stock in total portfolio, which implies that investor prefer highyield than risk aversion.(3) fund tens to flow into mutual fund with higher cashratio in fund portfolio, implying that investor tends to invest funds which couldbe easily redempted.(4) Previous purchase behavior will have significantimpacts in purchase behavior later.(5) Individual investors show higheriratiionality that institutional investors, which may be the reason of dispositioneffect and redemption anomaly in China.In Chaper5, VAR is used to analyze dynamic relationship among total fundflow, fund yield and stock market yield. Following results have been obtained:(1)there is existed significant herd effect in mutual fund market, the purchase andredemption show positive impulse feedback after a shock to the variable itself.Furthermore, the fund flow of most mutual fund show the same direction, alsocomfirm the herd behavior in mutual fund investment.(2) fund flow of totalmutual funds is affected by fund historic rate of return. Better performance in thepast could not induce greater purchase, but prohibit redemption.(3) the effect ofmarket yield on fund flow is heterogeneous, not always positive.(4) themovement of mutual fund flow, rate of return of mutual fund, market yield iscaused mainly by the variable itselves, but in the long run, the mutual fund flowplay an increasingly role in the movement of fund return and stock market return.We also conducted impulse feedback and variance decomposition to mutual fundflow of four different types of mtual fund in this chapter, finding that：(1) thefund flow of the four types of fund all have shock effect to later fund flow, butthe degree is different.(2) there existed difference among the performanceconsistence of the four types. Stock type and hybrid type mutual fund havepoorer performance consistence, so investor tend to redeem the fund when itsperformance is relatively higher as they expect the good performance could notcarry on. While, bond type fund has better performance consistence, so hasweaker disposition effect.