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Foreign currency exchange rates and mutual fund cash flows

Author

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  • John C Adams

    (Coggin College of Business, University of North Florida)

  • F Reid Hartsfield

Abstract

We provide new evidence linking foreign currency exchange rates and cash flows in and out of US-based international mutual funds. Our results suggest that changes in exchange rates and the associated volatility of those changes are important considerations when investors decide to purchase or redeem international mutual fund share. Specifically, we find that increased exchange rate volatility is positively and significantly related to 1- and 3-year net cash flows into and out of funds. We also document a negative relationship between short-term (previous year) and longer-term (previous 3 years) changes in foreign currency values.

Suggested Citation

  • John C Adams & F Reid Hartsfield, 2010. "Foreign currency exchange rates and mutual fund cash flows," Journal of Asset Management, Palgrave Macmillan, vol. 11(5), pages 314-320, December.
    • Handle: RePEc:pal:assmgt:v:11:y:2010:i:5:d:10.1057_jam.2009.37
    DOI: 10.1057/jam.2009.37
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    References listed on IDEAS

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    1. Harald Hau & Hélène Rey, 2006. "Exchange Rates, Equity Prices, and Capital Flows," The Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 273-317.
    2. Ippolito, Richard A, 1992. "Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 45-70, April.
    3. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    4. Nanda, Vikram & Narayanan, M. P. & Warther, Vincent A., 2000. "Liquidity, investment ability, and mutual fund structure," Journal of Financial Economics, Elsevier, vol. 57(3), pages 417-443, September.
    5. Vikram Nanda, 2004. "Family Values and the Star Phenomenon: Strategies of Mutual Fund Families," The Review of Financial Studies, Society for Financial Studies, vol. 17(3), pages 667-698.
    6. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
    7. Kenneth A. Froot & Tarun Ramadorai, 2008. "Institutional Portfolio Flows and International Investments," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 937-971, April.
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    Cited by:

    1. Soumitra K Mallick, 2010. "Asset-based economy and management in emerging capital markets," Journal of Asset Management, Palgrave Macmillan, vol. 11(5), pages 309-313, December.

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