Abstract
This study compares a measure of market-share changes with net flows to revisit the fund flow-performance relationship from the viewpoint of the heteroscedasticity of fund flows. We decompose market-share changes (net flows) into inflow and outflow shares and other parts (inflow and outflow) to explain their behavior. Market-share changes have a convex relationship with past performance, but net flows do not. Quantile regressions show that net flows have a convex (concave) relationship for the 90% (10%) quantile but market-share changes have a convex relationship for all quantiles. A characteristic analysis of quantile funds shows that relatively large (small) funds in the high (low) performance domain play an important role in the convex relationship between market-share changes and past performance. This study concludes that market-share change is a better measure for fund flows than net flow from the viewpoint of the agency problem.
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