Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund Outflows
We investigate determinants of fund investment flows using Korean equity investment funds. Unlike previous studies which analyzed net-flows (inflow minus outflow), we analyze fund investment inflows and outflows separately that should properly reflect investors’ fund selection and redemption decisio...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Korea Development Institute
2014-11-01
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| Series: | KDI Journal of Economic Policy |
| Subjects: | |
| Online Access: | https://doi.org/10.23895/kdijep.2014.36.4.33 |
| _version_ | 1818544490292445184 |
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| author | Shin, In seok Cho, Sung bin |
| author_facet | Shin, In seok Cho, Sung bin |
| author_sort | Shin, In seok |
| collection | DOAJ |
| description | We investigate determinants of fund investment flows using Korean equity investment funds. Unlike previous studies which analyzed net-flows (inflow minus outflow), we analyze fund investment inflows and outflows separately that should properly reflect investors’ fund selection and redemption decision. We find similar effects of past return, fund age on net-flows to existing studies based on US market data. The analysis of determinants of inflows shows that inflows are related to past return, fund age and sales fee as net- flows. In contrast, outflows are found to behave quite differently from inflows. Apparently, asymmetry exists between fund investment inflows and outflows at the Korean fund selection market. Specifically, high past returns increase fund investment inflows while increase, rather than decrease, fund outflows. Moreover, ‘convexity’ is detected both in inflows and outflows: higher past returns accelerate outflows as well as inflows. Effects of sales fee also differ between inflows and outflows. In the ‘affiliated’ fund sample, sales fee is negatively related to inflows while positively related to outflows. In the ‘unaffiliated’ fund sample, sales fee is positively related to inflows, but no significant relationship exists with outflows. Empirical findings of this paper imply that the rational investor’s fund selection view cannot provide a consistent explanation of the Korean fund selection market. In particular, the positive and convex relationship between past returns and fund outflows is inconsistent with the rational investor view. The fact that investor’s fund investment appears to display ‘disposition effect’, which has been reported by studies of individual investors’ stock investment behaviour suggests that the behavioral finance view should be a part of explanation for the Korean fund selection market. In addition, the strikingly different patterns between the ‘affiliated’ funds and the ‘unaffiliated’ funds, imply that brokers’ incentive structure is another prevailing factor for fund investment flows. |
| first_indexed | 2024-12-11T22:49:10Z |
| format | Article |
| id | doaj.art-67282185f2ea42f8a250393039278f13 |
| institution | Directory Open Access Journal |
| issn | 2586-2995 2586-4130 |
| language | English |
| last_indexed | 2024-12-11T22:49:10Z |
| publishDate | 2014-11-01 |
| publisher | Korea Development Institute |
| record_format | Article |
| series | KDI Journal of Economic Policy |
| spelling | doaj.art-67282185f2ea42f8a250393039278f132022-12-22T00:47:31ZengKorea Development InstituteKDI Journal of Economic Policy2586-29952586-41302014-11-01364337010.23895/kdijep.2014.36.4.33Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund OutflowsShin, In seok0Cho, Sung bin1Professor, School of Business Administration, Chung-Ang UniversityAssociate Professor, Department of Economics, Soongsil UniversityWe investigate determinants of fund investment flows using Korean equity investment funds. Unlike previous studies which analyzed net-flows (inflow minus outflow), we analyze fund investment inflows and outflows separately that should properly reflect investors’ fund selection and redemption decision. We find similar effects of past return, fund age on net-flows to existing studies based on US market data. The analysis of determinants of inflows shows that inflows are related to past return, fund age and sales fee as net- flows. In contrast, outflows are found to behave quite differently from inflows. Apparently, asymmetry exists between fund investment inflows and outflows at the Korean fund selection market. Specifically, high past returns increase fund investment inflows while increase, rather than decrease, fund outflows. Moreover, ‘convexity’ is detected both in inflows and outflows: higher past returns accelerate outflows as well as inflows. Effects of sales fee also differ between inflows and outflows. In the ‘affiliated’ fund sample, sales fee is negatively related to inflows while positively related to outflows. In the ‘unaffiliated’ fund sample, sales fee is positively related to inflows, but no significant relationship exists with outflows. Empirical findings of this paper imply that the rational investor’s fund selection view cannot provide a consistent explanation of the Korean fund selection market. In particular, the positive and convex relationship between past returns and fund outflows is inconsistent with the rational investor view. The fact that investor’s fund investment appears to display ‘disposition effect’, which has been reported by studies of individual investors’ stock investment behaviour suggests that the behavioral finance view should be a part of explanation for the Korean fund selection market. In addition, the strikingly different patterns between the ‘affiliated’ funds and the ‘unaffiliated’ funds, imply that brokers’ incentive structure is another prevailing factor for fund investment flows.https://doi.org/10.23895/kdijep.2014.36.4.33펀드투자 유입자금흐름(Fund Investment Inflow)펀드투자 유출자금흐름(Fund Investment Outflow)처분효과(Disposition Effect)판매사 유인(Broker’s Incentive) |
| spellingShingle | Shin, In seok Cho, Sung bin Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund Outflows KDI Journal of Economic Policy 펀드투자 유입자금흐름(Fund Investment Inflow) 펀드투자 유출자금흐름(Fund Investment Outflow) 처분효과(Disposition Effect) 판매사 유인(Broker’s Incentive) |
| title | Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund Outflows |
| title_full | Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund Outflows |
| title_fullStr | Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund Outflows |
| title_full_unstemmed | Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund Outflows |
| title_short | Determinants of Fund Investment Flows: Asymmetry between Fund Inflows and Fund Outflows |
| title_sort | determinants of fund investment flows asymmetry between fund inflows and fund outflows |
| topic | 펀드투자 유입자금흐름(Fund Investment Inflow) 펀드투자 유출자금흐름(Fund Investment Outflow) 처분효과(Disposition Effect) 판매사 유인(Broker’s Incentive) |
| url | https://doi.org/10.23895/kdijep.2014.36.4.33 |
| work_keys_str_mv | AT shininseok determinantsoffundinvestmentflowsasymmetrybetweenfundinflowsandfundoutflows AT chosungbin determinantsoffundinvestmentflowsasymmetrybetweenfundinflowsandfundoutflows |