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The turn-of-the-year effect in mutual fund flows

Author

Listed:
  • Hyung-Suk Choi

    (Ewha Womans University)

  • Doojin Ryu

    (Sungkyunkwan University)

  • Sangik Seok

    (Korea Advanced Institute of Science and Technology)

Abstract

The seasonal regularity in cash flows to mutual funds remains a puzzle. In line with Choi (J Appl Bus Res 31(2):715–726, 2015), who observes the seasonality in cash flows in the U.S. domestic mutual fund industry, we find that the month of January is characterized by the highest net flows, and December, the lowest. Considering that mutual fund traders usually implement their investment decisions during the turn-of-the-year period, this study investigates the potential causes of this seasonal regularity. The seasonal component of investors’ asset-allocation decisions is not associated with the seasonal variations in personal income growth and consumption growth. Instead, the tax treatment of the distribution from mutual funds is likely to drive this seasonal pattern. We also find strong evidence that past performance affects the seasonality in the cash flows of equity funds. The “January effect” in the inflow to mutual funds is stronger for the funds with higher past performance. Interestingly, investors are not sensitive to the past performance when they buy style funds, but they sell the funds with poorly performed styles at the turn of the year.

Suggested Citation

  • Hyung-Suk Choi & Doojin Ryu & Sangik Seok, 2017. "The turn-of-the-year effect in mutual fund flows," Risk Management, Palgrave Macmillan, vol. 19(2), pages 131-157, May.
    • Handle: RePEc:pal:risman:v:19:y:2017:i:2:d:10.1057_s41283-017-0015-y
    DOI: 10.1057/s41283-017-0015-y
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    Cited by:

    1. Fiza Qureshi & Ali M. Kutan & Habib Hussain Khan & Saba Qureshi, 2019. "Equity fund flows, market returns, and market risk: evidence from China," Risk Management, Palgrave Macmillan, vol. 21(1), pages 48-71, March.
    2. Uddin, Gazi Salah & Arreola Hernandez, Jose & Labidi, Chiraz & Troster, Victor & Yoon, Seong-Min, 2019. "The impact of financial and economic factors on Islamic mutual fund performance: Evidence from multiple fund categories," Journal of Multinational Financial Management, Elsevier, vol. 52.
    3. Juan Carlos Matallín-Sáez & Amparo Soler-Domínguez & Diego Víctor Mingo-López, 2021. "On management risk and price in the mutual fund industry: style and performance distribution analysis," Risk Management, Palgrave Macmillan, vol. 23(1), pages 150-171, June.
    4. Deari Fitim & Ulu Yasemin, 2023. "The Turn-of-the-Month Effect: Evidence from Macedonian Stock Exchange," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 33(3), pages 86-100, September.

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    More about this item

    Keywords

    Mutual fund flows; Seasonality test; Turn-of-the-year effect; Investor behavior; Style funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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