Abstract
ABSTRACT Based on the assumption that seasonal patterns have been identified in stock market assets and also in the context of equity mutual funds, the aim of this research is to investigate the relationship between the seasonality presented by the January effect and the net flow of Brazilian equity funds. The study extends the potential effects of seasonality beyond the return on stock market assets, demonstrating that seasonal patterns can also be observed in Brazilian mutual fund flows. The literature mostly points to common factors related to the performance of equity mutual funds; therefore this study investigates mutual fund flows, demonstrating that different factors influence the decisions of fund investors, including seasonal factors. The study has practical implications for fund managers, as it highlights a set of variables that can be used to anticipate variations in fund flow, reducing their effects on performance and avoiding costs. The results were estimated using panel data regression analysis. The study sample consisted of 1,010 equity funds, covering the period from January of 2004 to June of 2018. It was found that the average net inflow of Brazilian equity mutual funds is higher in January than in other months of the year, which characterizes the existence of a seasonal pattern in their net flows. However, the effect is different between exclusive and non-exclusive funds. As contributions, our findings: (i) provide a better understanding about the factors related to investor decision-making; (ii) point out new aspects in which exclusive and non-exclusive funds differ; and (iii) present factors that influence mutual fund flows.
Highlights
At the start of 2018, the amount of net equity under the management of Brazilian equity mutual funds represented more that 60% of the country’s gross domestic product (GDP) for 2017, that is, R$ 4.3 trillion
The aim of this study was to analyze the relationship between the known seasonality presented by the January effect in the stock market and equity fund flows
It investigated whether the seasonality of the month of January could have a different effect on the net inflow of exclusive and non-exclusive funds
Summary
At the start of 2018, the amount of net equity under the management of Brazilian equity mutual funds represented more that 60% of the country’s gross domestic product (GDP) for 2017, that is, R$ 4.3 trillion. It is even suggested that idiosyncratic components, such as seasonality and/or calendar effects, have a relationship with variations in fund flows (Choi, 2015; Choi, Ryu, & Seok, 2017; Kamstra, Kramer, Levi, & Wermers, 2017), when, for example, investors migrate their shares in mutual funds of different categories and classes of risk according to the seasons of the year or when they tend to rebalance their portfolios at the turn of the year Patterns such as those that have been found are considered seasonal calendar effects, as they concern predictable variations in relation to the behavior of financial assets at regular calendar intervals (Al-Khazali, Koumanakos, & Pyun, 2008). Such effects are not consistent with the market efficiency assumptions and are not decisions based on the rationality of investors (Keim, 1983)
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