IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v49y2024i2p170-191.html
   My bibliography  Save this article

Liquidity shocks and pension fund performance: Evidence from early access

Author

Listed:
  • James Brugler
  • Minsoo Kim
  • Zhuo Zhong

Abstract

We study how expectations of fund flows causally affect fund performance by exploiting a quasi-natural experiment in the Australian pension system where an unexpected policy change temporarily allowed fund withdrawals from a prespecified date in the future. Using fractions of young members, middle-aged members, and government co-contributions for low-income earners as instrumental variables, we find an insignificant effect of expected fund outflows on performance. A potential explanation is that Australian superannuation funds preemptively engage in liquidity management in response to changes in expectations of future fund flows and this helps to limit direct and indirect costs in the rebalancing process. JEL Classification: G11, G12, G14, G23, G51

Suggested Citation

  • James Brugler & Minsoo Kim & Zhuo Zhong, 2024. "Liquidity shocks and pension fund performance: Evidence from early access," Australian Journal of Management, Australian School of Business, vol. 49(2), pages 170-191, May.
    • Handle: RePEc:sae:ausman:v:49:y:2024:i:2:p:170-191
    DOI: 10.1177/03128962221127804
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/03128962221127804
    Download Restriction: no
    File URL: https://libkey.io/10.1177/03128962221127804?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. repec:bla:jfinan:v:55:y:2000:i:4:p:1655-1703 is not listed on IDEAS
    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. Yang Song, 2020. "The Mismatch Between Mutual Fund Scale and Skill," Journal of Finance, American Finance Association, vol. 75(5), pages 2555-2589, October.
    4. Chevalier, Judith & Ellison, Glenn, 1997. "Risk Taking by Mutual Funds as a Response to Incentives," Journal of Political Economy, University of Chicago Press, vol. 105(6), pages 1167-1200, December.
    5. repec:bla:jfinan:v:53:y:1998:i:5:p:1589-1622 is not listed on IDEAS
    6. Grinblatt, Mark & Titman, Sheridan D, 1989. "Mutual Fund Performance: An Analysis of Quarterly Portfolio Holdings," The Journal of Business, University of Chicago Press, vol. 62(3), pages 393-416, July.
    7. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    8. Coval, Joshua & Stafford, Erik, 2007. "Asset fire sales (and purchases) in equity markets," Journal of Financial Economics, Elsevier, vol. 86(2), pages 479-512, November.
    9. Dong Lou, 2012. "A Flow-Based Explanation for Return Predictability," The Review of Financial Studies, Society for Financial Studies, vol. 25(12), pages 3457-3489.
    10. Jonathan B. Berk & Richard C. Green, 2004. "Mutual Fund Flows and Performance in Rational Markets," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1269-1295, December.
    11. Laura Montenovo & Xuan Jiang & Felipe Lozano Rojas & Ian M. Schmutte & Kosali I. Simon & Bruce A. Weinberg & Coady Wing, 2020. "Determinants of Disparities in Covid-19 Job Losses," NBER Working Papers 27132, National Bureau of Economic Research, Inc.
    12. Berk, Jonathan B. & van Binsbergen, Jules H., 2016. "Assessing asset pricing models using revealed preference," Journal of Financial Economics, Elsevier, vol. 119(1), pages 1-23.
    13. Hui Chen & Rui Cui & Zhiguo He & Konstantin Milbradt, 2018. "Quantifying Liquidity and Default Risks of Corporate Bonds over the Business Cycle," The Review of Financial Studies, Society for Financial Studies, vol. 31(3), pages 852-897.
    14. Gharghori, Philip & Mudumba, Shifali & Veeraraghavan, Madhu, 2007. "How smart is money? An investigation into investor behaviour in the Australian managed fund industry," Pacific-Basin Finance Journal, Elsevier, vol. 15(5), pages 494-513, November.
    15. Stefan Nagel, 2012. "Evaporating Liquidity," The Review of Financial Studies, Society for Financial Studies, vol. 25(7), pages 2005-2039.
    16. Rakesh Gupta & Thadavillil Jithendranathan, 2012. "Fund flows and past performance in Australian managed funds," Accounting Research Journal, Emerald Group Publishing Limited, vol. 25(2), pages 131-157, September.
    17. Randi Næs & Johannes A. Skjeltorp & Bernt Arne Ødegaard, 2011. "Stock Market Liquidity and the Business Cycle," Journal of Finance, American Finance Association, vol. 66(1), pages 139-176, February.
    18. Peng, Xiaowen & Alpert, Karen & Hsu, Grace Chia-Man, 2020. "Switching between superannuation funds: Does performance and marketing matter?," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    19. Guido Matias Cortes & Eliza Forsythe, 2023. "Heterogeneous Labor Market Impacts of the COVID-19 Pandemic," ILR Review, Cornell University, ILR School, vol. 76(1), pages 30-55, January.
    20. Marilyn Clark-Murphy & Paul Gerrans & Craig Speelman, 2009. "Return Chasing as a Driver in Individual Retirement Savings Investment Choices: Evidence from Australia," Journal of Family and Economic Issues, Springer, vol. 30(1), pages 4-19, March.
    21. Philip Gharghori & Charly Sujoto & Madhu Veeraraghavan, 2008. "Are Australian Investors Smart?," Australian Journal of Management, Australian School of Business, vol. 32(3), pages 525-544, March.
    22. Brad M. Barber & Xing Huang & Terrance Odean, 2016. "Which Factors Matter to Investors? Evidence from Mutual Fund Flows," The Review of Financial Studies, Society for Financial Studies, vol. 29(10), pages 2600-2642.
    23. Goldstein, Itay & Jiang, Hao & Ng, David T., 2017. "Investor flows and fragility in corporate bond funds," Journal of Financial Economics, Elsevier, vol. 126(3), pages 592-613.
    24. Frazzini, Andrea & Lamont, Owen A., 2008. "Dumb money: Mutual fund flows and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 88(2), pages 299-322, May.
    25. Spiegel, Matthew & Zhang, Hong, 2013. "Mutual fund risk and market share-adjusted fund flows," Journal of Financial Economics, Elsevier, vol. 108(2), pages 506-528.
    26. William N. Goetzmann & Nadav Peles, 1997. "Cognitive Dissonance And Mutual Fund Investors," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 145-158, June.
    27. Russ Wermers, 2000. "Mutual Fund Performance: An Empirical Decomposition into Stock‐Picking Talent, Style, Transactions Costs, and Expenses," Journal of Finance, American Finance Association, vol. 55(4), pages 1655-1695, August.
    28. Chen, Qi & Goldstein, Itay & Jiang, Wei, 2010. "Payoff complementarities and financial fragility: Evidence from mutual fund outflows," Journal of Financial Economics, Elsevier, vol. 97(2), pages 239-262, August.
    29. Jeff Borland & Andrew Charlton, 2020. "The Australian Labour Market and the Early Impact of COVID‐19: An Assessment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 53(3), pages 297-324, September.
    30. J. Sawicki, 2001. "Investors' Differential Response To Managed Fund Performance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(3), pages 367-384, September.
    31. Jennifer Huang & Kelsey D. Wei & Hong Yan, 2007. "Participation Costs and the Sensitivity of Fund Flows to Past Performance," Journal of Finance, American Finance Association, vol. 62(3), pages 1273-1311, June.
    32. Joseph Chen & Harrison Hong & Ming Huang & Jeffrey D. Kubik, 2004. "Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organization," American Economic Review, American Economic Association, vol. 94(5), pages 1276-1302, December.
    33. William N. Goetzmann & Nadav Peles, 1997. "Cognitive Dissonance And Mutual Fund Investors," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 145-158, June.
    34. Edwin J. Elton & Martin J. Gruber & Christopher R. Blake, 2001. "A First Look at the Accuracy of the CRSP Mutual Fund Database and a Comparison of the CRSP and Morningstar Mutual Fund Databases," Journal of Finance, American Finance Association, vol. 56(6), pages 2415-2430, December.
    35. Sawicki, J, 2001. "Investors' Differential Response to Managed Fund Performance," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(3), pages 367-384, Fall.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hodula, Martin & Szabo, Milan & Bajzík, Josef, 2024. "Retail fund flows and performance: Insights from supervisory data," Emerging Markets Review, Elsevier, vol. 59(C).
    2. Clemens Sialm & T. Mandy Tham, 2016. "Spillover Effects in Mutual Fund Companies," Management Science, INFORMS, vol. 62(5), pages 1472-1486, May.
    3. Philippe van der Beck & Jean-Philippe Bouchaud & Dario Villamaina, 2024. "Ponzi Funds," Papers 2405.12768, arXiv.org.
    4. Casavecchia, Lorenzo, 2016. "Fund managers' herding and the sensitivity of fund flows to past performance," International Review of Financial Analysis, Elsevier, vol. 47(C), pages 205-221.
    5. Noam Ben-Ze'ev, 2023. "Drivers of Flows-Performance Sensitivity in Mutual Funds," Bank of Israel Working Papers 2023.06, Bank of Israel.
    6. Ainulashikin Marzuki & Andrew C. Worthington, 2011. "Comparative fund flows for Malaysian Islamic and conventional domestic managed equity funds," Discussion Papers in Finance finance:201118, Griffith University, Department of Accounting, Finance and Economics.
    7. Teodor Dyakov & Marno Verbeek, 2019. "Can Mutual Fund Investors Distinguish Good from Bad Managers?," International Review of Finance, International Review of Finance Ltd., vol. 19(3), pages 505-540, September.
    8. Goriaev, Alexei & Nijman, Theo E. & Werker, Bas J.M., 2008. "Performance information dissemination in the mutual fund industry," Journal of Financial Markets, Elsevier, vol. 11(2), pages 144-159, May.
    9. Jannic Cutura & Gianpaolo Parise & Andreas Schrimpf, 2020. "Debt De-risking," BIS Working Papers 868, Bank for International Settlements.
    10. Jennifer Huang & Kelsey D. Wei & Hong Yan, 2022. "Investor learning and mutual fund flows," Financial Management, Financial Management Association International, vol. 51(3), pages 739-765, September.
    11. Rakowski, David & Yamani, Ehab, 2021. "Endogeneity in the mutual fund flow–performance relationship: An instrumental variables solution," Journal of Empirical Finance, Elsevier, vol. 64(C), pages 247-271.
    12. Chang, Xiaochen & Guo, Songlin & Huang, Junkai, 2022. "Kidnapped mutual funds: Irrational preference of naive investors and fund incentive distortion," International Review of Financial Analysis, Elsevier, vol. 83(C).
    13. Goldstein, Itay & Jiang, Hao & Ng, David T., 2017. "Investor flows and fragility in corporate bond funds," Journal of Financial Economics, Elsevier, vol. 126(3), pages 592-613.
    14. Yang Song, 2020. "The Mismatch Between Mutual Fund Scale and Skill," Journal of Finance, American Finance Association, vol. 75(5), pages 2555-2589, October.
    15. Ramiro Losada, 2022. "La información pública periódica de los fondos de inversión: como influyen en las decisiones de los inversores," CNMV Documentos de Trabajo CNMV Documentos de Trabaj, CNMV- Comisión Nacional del Mercado de Valores - Departamento de Estudios y Estadísticas.
    16. Daniel Schmidt & Frank Schmielewski, 2012. "Consumer reaction on tumbling funds - Evidence from retail fund outflows during the financial crisis 2007/2008," Working Paper Series in Economics 228, University of Lüneburg, Institute of Economics.
    17. Christopher P. Clifford & Jon A. Fulkerson & Russell Jame & Bradford D. Jordan, 2021. "Salience and Mutual Fund Investor Demand for Idiosyncratic Volatility," Management Science, INFORMS, vol. 67(8), pages 5234-5254, August.
    18. Yong Chen & Nan Qin, 2017. "The Behavior of Investor Flows in Corporate Bond Mutual Funds," Management Science, INFORMS, vol. 63(5), pages 1365-1384, May.
    19. 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.
    20. Jeon, Hyunglae & Kang, Jangkoo & Lee, Changjun, 2017. "Precision about manager skill, mutual fund flows, and performance persistence," The North American Journal of Economics and Finance, Elsevier, vol. 40(C), pages 222-237.

    More about this item

    Keywords

    Expectations; fund flows; fund performance; liquidity management; natural experiment; pension funds;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:49:y:2024:i:2:p:170-191. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.