The dynamics of short-term mutual fund flows and returns: A time-series and cross-sectional investigation |
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Authors: | David Rakowski Xiaoxin Wang |
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Institution: | Department of Finance, Southern Illinois University, Mailcode 4626, Carbondale, IL 62901, United States |
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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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Keywords: | G11 G23 |
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