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The dynamics of short-term mutual fund flows and returns: A time-series and cross-sectional investigation

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  • Rakowski, David
  • Wang, Xiaoxin

Abstract

This study analyzes the dynamics of daily mutual fund flows. A Vector Auto Regression (VAR) of flows and returns shows that the behavior of fund investors is more consistent with contrarian rather than momentum characteristics. Past fund flows have a positive impact on future fund returns, with the long-term information effect dominating the transient price-pressure effect. Seasonality in daily flows, such as day-of-week and day-of-month patterns are present, and daily flows are generally mean-reverting. Probit regressions indicate that fund investment objective, marketing policy and level of active management explain cross-sectional variation in the behavioral patterns displayed in daily flows. Our results are robust to the different methods of calculating daily flows based on whether or not the day-end TNA figures include the current-day's flow. Throughout the analysis, we contrast the dynamics of daily flows with established results for monthly fund flows and find important differences between the two.

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  • Rakowski, David & Wang, Xiaoxin, 2009. "The dynamics of short-term mutual fund flows and returns: A time-series and cross-sectional investigation," Journal of Banking & Finance, Elsevier, vol. 33(11), pages 2102-2109, November.
  • Handle: RePEc:eee:jbfina:v:33:y:2009:i:11:p:2102-2109
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    Cited by:

    1. Singal, Vijay & Xu, Zhaojin, 2011. "Selling winners, holding losers: Effect on fund flows and survival of disposition-prone mutual funds," Journal of Banking & Finance, Elsevier, vol. 35(10), pages 2704-2718, October.
    2. Shinozawa, Yoshikatsu & Vivian, Andrew, 2015. "Determinants of money flows into investment trusts in Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 37(C), pages 138-161.
    3. Jank, Stephan, 2012. "Mutual fund flows, expected returns, and the real economy," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3060-3070.
    4. Vassilios Babalos & Guglielmo Maria Caporale & Nicola Spagnolo, 2016. "Equity Fund Flows and Stock Market Returns in the US before and after the Global Financial Crisis: A VAR-GARCH-in-mean Analysis," CESifo Working Paper Series 5932, CESifo Group Munich.
    5. Md. Shahadath Hossain & A.B.M. Munibur Rahman & Md. Salah Uddin Rajib, 2013. "Dynamics of Mutual Funds in Relation to Stock Market: A Vector Autoregressive Causality Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 191-201.
    6. repec:eee:quaeco:v:65:y:2017:i:c:p:137-145 is not listed on IDEAS
    7. Chia-Lin Chang & Yu-Pei Ke, 2014. "Testing Price Pressure, Information, Feedback Trading, And Smoothing Effects For Energy Exchange Traded Funds," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-26.
    8. Babalos, Vassilios & Mamatzakis, Emmanuel C. & Matousek, Roman, 2015. "The performance of US equity mutual funds," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 217-229.
    9. Charupat, Narat & Miu, Peter, 2011. "The pricing and performance of leveraged exchange-traded funds," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 966-977, April.
    10. Elton, Edwin J. & Gruber, Martin J. & Blake, Christopher R. & Krasny, Yoel & Ozelge, Sadi O., 2010. "The effect of holdings data frequency on conclusions about mutual fund behavior," Journal of Banking & Finance, Elsevier, vol. 34(5), pages 912-922, May.
    11. Martin Rohleder & Dominik Schulte & Marco Wilkens, 2017. "Management of flow risk in mutual funds," Review of Quantitative Finance and Accounting, Springer, vol. 48(1), pages 31-56, January.
    12. Mustafa Kultur & Romuald Morhs, 2014. "The impact of the exchange rate on Luxembourg equity funds," BCL working papers 86, Central Bank of Luxembourg.
    13. Witmer, Jonathan, 2016. "Does the buck stop here? A comparison of withdrawals from money market mutual funds with floating and constant share prices," Journal of Banking & Finance, Elsevier, vol. 66(C), pages 126-142.
    14. Kees de Van & Daniele Fano & Herialt Mens & Giovanna Nicodano, 2014. "A Reporting Standard for Defined Contribution Pension Plans," CeRP Working Papers 143, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    15. Naik, Pramod Kumar & Padhi, Puja, 2014. "An Empirical Evidence of Dynamic Interaction between institutional fund flows and Stock Market Returns," MPRA Paper 57723, University Library of Munich, Germany.
    16. Janusz Brzeszczyński & Martin T. Bohl & Dobromił Serwa, 2012. "Large Capital Inflows and Stock Returnsin a Thin Market," CFI Discussion Papers 1201, Centre for Finance and Investment, Heriot Watt University.
    17. Wermers, Russ, 2012. "Runs on money market mutual funds," CFR Working Papers 12-05, University of Cologne, Centre for Financial Research (CFR).
    18. Jinjarak, Yothin & Wongswan, Jon & Zheng, Huanhuan, 2011. "International fund investment and local market returns," Journal of Banking & Finance, Elsevier, vol. 35(3), pages 572-587, March.
    19. Lee, Bong Soo & Paek, Miyoun & Ha, Yeonjeong & Ko, Kwangsoo, 2015. "The dynamics of market volatility, market return, and equity fund flow: International evidence," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 214-227.
    20. Laborda, Ricardo & Muñoz, Fernando, 2016. "Optimal allocation of government bond funds through the business cycle. Is money smart?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 46-67.
    21. Martin Rohleder, 2015. "The Relation between Past Flows and Future Performance: Simple Investment Strategies in the Mutual Fund Sector," International Journal of Financial Studies, MDPI, Open Access Journal, vol. 3(1), pages 1-28, February.
    22. Jesus Sierra, 2012. "Consumer Interest Rates and Retail Mutual Fund Flows," Staff Working Papers 12-39, Bank of Canada.
    23. Gygax, André F. & Otchere, Isaac, 2010. "Index composition changes and the cost of incumbency," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2500-2509, October.

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