Mutual Fund Market Research Articles

Mutual fund net flows in China: A co-holding network perspective

As the largest part of the mutual fund, open-end funds play a critical role in the Chinese mutual fund market. In this work, we construct an undirected weighted fund network of Chinese open-end funds based on the asset co-holding and explore whether funds’ co-holdings influence their net flows. The network structure traits are introduced into a panel data model to examine the impact of the asset co-holding network on fund flow changes. It is revealed that when a fund has more connections with other funds, indicated by a higher degree in the co-holding network, it receives more net flows. However, when the average co-holding value of a fund increases, its outflows outnumber the inflows. Furthermore, heterogeneity analysis suggests that this effect particularly exists for low-performance funds. The implications of these findings for fund investor behavior and the fund market are also discussed.

Fund ESG performance and downside risk: Evidence from China

Whether responsible investing reduces portfolio risk remains open to discussion. We study the relationship between ESG performance and downside risk at fund level in the Chinese equity mutual fund market. We find that fund ESG performance is positively associated with fund downside risk during the period between July 2018 and March 2021, and that the positive relationship weakens during the COVID-19 pandemic. We propose three channels through which fund ESG performance could affect fund downside risk: (i) the firm channel in which the risk-mitigation effect of portfolio firms’ good ESG practices could be manifested at fund level, (ii) the diversification channel in which the portfolio concentration of high ESG-rated funds could amplify fund downside risk, and (iii) the flow channel in which funds’ better ESG performance may attract greater investor flows that could reduce fund downside risk. We show evidence that the observed time-varying relationship between fund ESG performance and downside risk is driven by the relative force of the three channels.

The Impact of Salient Fees: Evidence from the Mutual Fund Market

The Impact of Salient Fees: Evidence from the Mutual Fund Market

Target-date funds: lessons learned

Target-date funds are mutual funds with a date in their description. The date signifies the retirement date for the person for whom the mutual fund is designed. The basic proposition is that the fund’s composition will be adjusted as it evolves toward that date, which will relieve the investor of the problem of asset allocation. These funds received a significant boost in 2006 when they became the default choice of many defined contribution plans. However, in our 2011 paper in The Journal of Risk we showed that many funds significantly increased their allocation toward equities immediately prior to the 2007–9 global financial crisis and consequently saw significant losses. Since this was only shortly after target-date funds became a significant component of the mutual fund market, this research assesses the maturation of target-date funds and their performance during the Covid-19 pandemic, when there were again significant market losses. Overall, our assessment is that target-date funds have largely met their designation and there is no evidence of them similarly gaming their asset allocation as occurred prior to the financial crisis.

Are broker-sold funds flows sensitive to fund performance or not Evidence from Indian mutual funds market

Are broker-sold funds flows sensitive to fund performance or not Evidence from Indian mutual funds market

Mutual Fund Market Structure and Company Fee Competition: Theory and Evidence

Mutual Fund Market Structure and Company Fee Competition: Theory and Evidence

Do fund managers in the Chinese mutual fund market deliver positive risk-adjusted returns? Yes, but it is mainly observed for local fund managers

<abstract> <p>A bootstrap and a subsequent injected alpha analysis were conducted on 1,221 Chinese mutual funds that were active at some point between July 2001 and July 2021. The results show that most active managers achieve a positive risk-adjusted return. Additionally, we find that this phenomenon is primarily attributable to local (i.e., Chinese) fund managers. We argue that one explanation for the different levels of risk-adjusted returns observed is the information asymmetry between foreign and local fund managers. Additional results support this view, as fund managers primarily investing in small- to mid-cap and value stocks provide a superior performance, which inherently exhibit greater information asymmetry. The findings are contrary to those from similar studies in developed markets, where only a few active managers demonstrate actual skill in their performance.</p> </abstract>

Are broker-sold funds flows sensitive to fund performance or not Evidence from Indian Mutual Funds Market

Are broker-sold funds flows sensitive to fund performance or not Evidence from Indian Mutual Funds Market

Performance evaluation models applied to the Brazilian mutual funds market

PurposeThis paper analyzes alternative performance evaluation models applied to equity mutual funds under conditional and unconditional approaches in the Brazilian market.Design/methodology/approachThe analysis is conducted using CAPM's single factor, Fama–French three and five factors, under their conditional and unconditional versions in a sample of 896 equity mutual funds from 2008 to 2019.FindingsThe results suggest that the use of three- or five-factor models is especially relevant to reduce the effect of market anomalies in performance assessment. Additionally, results show that conditional approaches, adding time-varying alphas and betas with macroeconomic variables, provide higher explanatory power than their unconditional peers.Originality/valueThe results are relevant in the unique economic environment characterized by historically high interest rate and high market volatility.

Impact of Financial Benchmarks Upon the Portfolio Distribution of Mutual Funds: The Evidence from Turkish Capital Market

The purpose of the study is to examine how financial benchmark returns impact the portfolio distribution of mutual funds. The scope of paper is limited to Turkish mutual funds market. Method employed in the paper; Granger Causality Test based on the VAR model is used. Findings of the quantitative analysis: As the return on government debt securities (index) inclines, the demand on Government Domestic Debt Securities goes up, and then, weight of government debt securities increases in consolidated portfolio of mutual funds. The paper concludes that for bonds, benchmark returns are effective on portfolio distribution of mutual funds.

Why do bank‐affiliated mutual funds perform better in China?

AbstractPrior literature documents that bank‐affiliated mutual funds underperform unaffiliated funds in developed markets. Using data from the Chinese mutual fund market from 2005 to 2020, we find that Chinese bank‐affiliated funds outperform unaffiliated funds by about 2.63 percent per year. In addition, our results show that bank‐affiliated fund managers have superior active management and better stock‐picking skills, which is preliminarily related to the motivational compensation policies from fund companies and the slight redemption pressure from investors. However, we find no evidence for the potential information advantage of bank‐affiliated funds. Our findings have important implications for fund companies and investors.

Global mutual fund market: the turn of the month effect and investment strategy

Turn of the month (TOM) is a widely recognized anomaly and studied majorly in the context with equity markets. However, the global mutual fund market has not been much exposed to empirical testing of the TOM anomaly and the implication thereof. This study has dual objectives of not only investigating if the TOM effect persists in the world of equity mutual funds but also proposing an investment strategy to exploit the TOM anomaly to mutual fund investors. The study examines 40 equity mutual funds across 6 different geographies and 2 multi-geographic segments. For the sample period of 15 years (2005–2020), crucially covering financial crisis as well as an outbreak of the Covid-19 pandemic this study confirms a statistically significant effect of TOM for 23 out of 40 funds. Based on findings, the paper proposes a staggered investment strategy to investors in mutual funds for entry and exit to exploit the TOM effect for return enhancement.

An examination of herding behaviour of the Chinese mutual funds: A time-varying perspective

This paper investigates the existence of herding behaviour in the Chinese mutual fund market from a time-varying perspective. We examine the relationship between the dispersion of fund returns and the fund market returns using a Markov regime switching approach, and explore the driving factors of herding under different regimes. Our results suggest that herding behaviour is time-varying and heterogeneous across different fund types, investment styles, fund sizes, and industrial groups. In addition, the observed herding behaviours are mainly driven by non-fundamentals. We also find that herding behaviour is more pronounced during the up market and becomes insignificant during the down market.

A Study on Investors Perception on Indian Mutual Funds System with Reference to Private and Public Players

Abstract: The goal of this research is to find out more about investors' preferences and perceptions of the Indian mutual fund system, with a focus on private and public players. The two most common investor classes in the Indian mutual fund market, public and private players, were used to select mutual fund businesses. A mutual fund is a way of pooling money by distributing units to investors and investing the proceeds in securities in accordance with the offer document's goals. As a result, for the typical person, a mutual fund is the greatest investment since it allows them to invest in a diversified, professionally managed basket of securities at a low cost. In recent years, the number of investors and investment sources has exploded.

Key investor information disclosure regulation and retail mutual fund flows in the Finnish market

PurposeIn the European Union, the Undertakings for Collective Investment in Transferable Securities Directive (UCITS IV) requires fund management companies to provide a Key Investor Information Document (UCITS KIID) for investors. This papers uses archival data from the Finnish mutual fund market to test how the regulation's information disclosure requirements concerning past performance, risk and fund fees are associated with mutual fund flows.Design/methodology/approachThe study uses archival data on the mutual funds market in Finland to test how the regulation relating to retail investors' information requirements is associated with mutual fund flows.FindingsOur findings suggest that the UCITS KIID predicts retail investors' fund flows. While past performance is associated with fund flows throughout the observation period, retail investors appear to have become more sensitive to fund fees and invest in less risky funds following the adoption of the UCITS IV period.Practical implicationsInformation relating to fund fees and risk appears to be relevant to retail investors, which should be acknowledged in future iterations of short-form disclosure and in mutual fund marketing.Originality/valueThis paper is the first to assess the significance of KIID in actual market environment.

The Determinants of Convexity in the Flow-Performance Relationship: A Study of Pakistani Mutual Funds

Purpose: This paper aims to study the potential sources of convexity in the flow-performance relationship curve in the Asian region.
 Design/Methodology/Approach: The sample for this study includes 75 mutual funds from three broader investment categories: stock funds, balanced funds, and asset allocation funds. The data is collected from the financial reports of the respective funds from 2011 to 2020. The study employs the ordinary least square method on unbalanced panel data. 
 Findings: The findings show that the fund flows are positively associated with fund performance in the Pakistani mutual fund market. The result also confirmed that the shape of the relationship is convex. The fund size and marketing expenditures are positively associated with convexity. However, fund age does not affect the convexity. The Result also confirmed that fund rating is not an appropriate proxy for fund size.
 Practical Implication- In period of low performance mutual fund management can retain their investors by increasing their marketing expenditures and fund size.
 Originality/Value: This paper fulfills an identified need to study the sources behind non-linear flow-performance relationship curve in the Asian region. This study also aims to resolve the conflict in literature relating to the fund size on the convexity of the flow performance relationship.

Literature review analysis and study on current status of mutual fund market in India

Literature review analysis and study on current status of mutual fund market in India

Performance and Asset Size in the European Mutual Fund Market

Performance and Asset Size in the European Mutual Fund Market

The Economics of Mutual Fund Marketing

The Economics of Mutual Fund Marketing

Forecasting Fund Flows in Indian Equity Mutual Funds Market using Time Series Analysis: An Empirical Investigation

<p>Mutual Funds are the second most preferred financial investment option in India amongst households, corporate and private investors alike. Managed funds bring with them the expertise of fund managers along with the benefits of diversification and lower costs. The sensitivity of fund flows defines the ability of the fund manager in offering expected future returns. Mutual fund flows exhibit time series characteristics, it being financial data collected at regular intervals over a time period. This paper studies the dynamics of mutual fund flows by utilising time series regression modelling. Monthly fund flows data for a sample of 142 equity open-ended growth orientation across major marketcap categories – Large Cap, Large and Mid Cap, Multi Cap, Mid Cap, and Small Cap have been analysed using ARIMA Modelling in the R software package. Appropriate lag length and the presence of a unit root have been investigated with the help of established techniques coupled with suitable checks of robustness. Model of best fit has been used to forecast monthly fund flows for a lag length of 60. Our study leads us to two major outcomes. One, unlike many developed and emerging markets, fund flows in the chosen sample do not confirm to positive feedback trading hypothesis. This lends credible support to the absence of irrational exuberance in mutual fund investments. Second, equity-based funds in Large Cap, Large and Mid Cap, and Multi Cap category exhibit strong trend component while funds in Mid Cap and Small Cap category have a strong random component. Beginner investors can take advantage of alpha offered by fund managers possessing effective market -timing skills, an indicator of trend-investing strategy. Funds belonging to these categories are also lesser prone to market volatility in comparison to Mid Cap and Small Cap funds, being more suitable for experienced investors</p>