Do Australian Managed Funds Investors Exhibit Return Chasing Behavior?

Abstract

Australia has a mandatory superannuation scheme for all employees, where employer deducts 9% of the employees’ wages and contributes to the designated super fund. Momentum strategies suggest investors look at the past returns and move their investments into the assets that have performed better during the past. This study investigates if Australian managed fund investors shift their investments across funds based on the performance of the fund during the preceding periods. Results of the study are mixed. Study finds a weak relationship between the outflows from the categories with lower risk and no relationship between outflows and returns for the balanced and risky categories. This finding suggest that more risk averse investors are more likely to exhibit return chasing behavior and less risk investors are less likely to follow the return chasing.