Business cycle and investment flows of retail and institutional mutual funds

Abstract

Purpose The purpose of this paper is to investigate the dynamics of mutual fund investment flows across the business cycle. To account for the differences in the flow patterns of funds catered for institutional investors and those focusing on retail investors, the author conducts this investigation separately for flows of institutional and retail funds. Design/methodology/approach The author uses the sample of US equity mutual funds for the period between 1999 and 2012. For the samples of each type of fund, the author performs separate analyses for expansion and recession periods. Following Sirri and Tufano (1998), the author implements the Fama MacBeth (1973) approach. Findings The author finds that flow patterns of both fund types vary across the business cycle. For example, the results reveal that during bad times, institutional investors demonstrate weaker return-chasing behavior, while paying higher attention to Jensen’s α, than during good times. In addition, the author reports results on the effect of fund exposure to various systematic risk factors. For instance, the author observes that during economic downturns, investors of both fund types tend to punish managers with higher market exposure. During expansions, the fund’s market exposure positively affects flows of institutional funds, while its effect on the flows of retail funds remains negative. Originality/value To the best of the author’s knowledge, this is the first study that investigates mutual fund investment flow patterns across the business cycle, while simultaneously accounting for differences in flow patterns between retail and institutional funds. A further contribution of this paper is that it explores the previously overlooked relationships between fund flows and their exposure to various systematic risk factors.

Performance risk analysis on mutual funds versus stock exchanges in young financial markets

“…Thirdly, in all three countries the low risk funds (bonds and monetary funds) had better performances in terms of both returns and risks than the high risk funds, confirming the conclusions of other studies that low risk funds perform better in economic recession periods than in economic expansion periods (Kosowski, 2011;Salganik-Shoshan, 2017).…”

“…These come to complete the literature that states that equity funds as high risk funds usually have leptokurtik distributions (kurtosis coefficients higher than 3) (Jondeau et al, 2000;De Richard et al, 2015) and that the equity returns especially have negative asymmetries (Jondeau et al, 2000, p. 14). These findings are amplified by the period of study characterized also by economic turmoil, being well known the fact that crisis periods multiply the investment risks (Koutsokostas et al, 2019;Salganik-Shoshan, 2017).…”

Key investor information disclosure regulation and retail mutual fund flows in the Finnish market

“…In contrast, institutional and large private investors are sophisticated investors with more wealth and experience and better KIID regulation and retail mutual fund flows information (e.g. Del Guercio and Tkac, 2002;James and Karceski, 2006;Bailey et al, 2011;Salganik-Shoshan, 2017). As a result, retail investors often pay higher fees (Crespo, 2009;Khorana et al, 2009) and receive less compensation in return for those fees (Korkeamaki and Smythe, 2004).…”

Investigating Media and Communication Channel Search Behaviour of Retail Investors for Investment Decision in Emerging Financial Markets

“…Although, mutual fund investors base their decisions on factors like fund manager, fees and type of fund, fund age, board size, economic growth and country's governance Ramasamy and Yeung, 2003;Salganik-Shoshan, 2017;Oehler et al, 2018;Sharma and Paul, 2014;Zhongzhi et al, 2018;Tauni et al, 2017), but other factors like sourcing information about mutual funds can be important resource to be duly researched for in present times (Alexander et al, 1998;Loibl and Hira, 2006;Capon et al, 1996;Wilcox, 2003;Kaur, 2018;Kaur and Kaushik, 2016). The main purpose of this study with research gap is RQ: To investigate whether various sources of information sources about mutual funds can be an important determinant about the investors' investment behaviour in emerging financial markets like India and other southeast Asian countries?…”