Out of sight, not out of mind: The evidence from Taiwan mutual funds

Abstract

This paper extends the current literatures on the relation between fund expenses and fund flows using data from Taiwan. Our findings for the Taiwan market differ from previous studies on the U.S. market. Specifically, we find no support for the notion of “out of sight, out of mind”. For Taiwan mutual funds, net flows and inflows are negatively related to operating expenses but not front-end loads. The discrepancy between our results and those reported for the U.S. market may be attributed to the fee structure in Taiwan, where operating expenses are much higher than front-end loads and seem to have a bigger impact on fund performance. The negative relation between net flows (inflows) and operating expenses is more pronounced for funds with high institutional investor participation and funds charging high operating expenses. However, investor types show no significant impact on the relations between front-end loads and various measures of fund flows.