Determinants of Convexity in the Flow-Performance Relationship: A Study of Pakistani Mutual Funds
Abstract
Purpose: This paper aims to study the potential sources of convexity in the flow-performance relationship curve in the Asian region.
Design/Methodology/Approach: The sample for this study includes 75 mutual funds from three broader investment categories: stock funds, balanced funds, and asset allocation funds. The data is collected from the financial reports of the respective funds from 2011 to 2020. The study employs the ordinary least square method on unbalanced panel data.
Findings: The findings show that the fund flows are positively associated with fund performance in the Pakistani mutual fund market. The result also confirmed that the shape of the relationship is convex. The fund size and marketing expenditures are positively associated with convexity. However, fund age does not affect the convexity. The Result also confirmed that fund rating is not an appropriate proxy for fund size.
Practical Implication- In period of low performance mutual fund management can retain their investors by increasing their marketing expenditures and fund size.
Originality/Value: This paper fulfills an identified need to study the sources behind non-linear flow-performance relationship curve in the Asian region. This study also aims to resolve the conflict in literature relating to the fund size on the convexity of the flow performance relationship.
Downloads
Article Analytics Summary
References
References
Ahmed, Y., Sun, G. and Khan, W. (2018). The impact of Fund characteristic on Performance:
Evidence in equity mutual funds in Pakistan. City University Research Journal, 8(2),
-218.
Barber, B. M., Huang, X. and Odean, T. (2016). Which factors matter to investors? Evidence DOI: https://doi.org/10.1093/rfs/hhw054
from mutual fund flows, Review of Financial Studies, 29, 2600-2642.
Bellando, R. and Dieu, L. (2011). Fund flow/performance relationship: A case of French equity
market. Revue économique, 62(2), 255-275.
Bergstresser, D. and Poterba, J. (2002). Do after-tax returns affect mutual fund inflows? Journal DOI: https://doi.org/10.1016/S0304-405X(02)00066-1
of Financial Economics, 63(3), 381-414.
Berk, J. and Green, R. (2004). Mutual fund flows and performance in rational markets. Journal DOI: https://doi.org/10.2139/ssrn.383061
of Political Economy, 112(6), 1269-1295.
Berk, J. and Tonks, I. (2007). Return persistence and fund flows in the worst performing mutual DOI: https://doi.org/10.3386/w13042
funds. National Bureau of Economic Research, Working Paper (w13042).
Brborovic, D. and Posedel, P. (2014). The Relation between Performance and Flows of Mutual
Funds: Case of the Croatian Fund Market. Applied Mathematics, 5(1), 3067-3078.
Brown, S. and Goetzmann, W. (1995). Performance persistence. Journal of Finance, 50(2), 679- DOI: https://doi.org/10.1111/j.1540-6261.1995.tb04800.x
Chen, Q., Goldstein, I. and Jiang, W. (2008). Director ownership in US Mutual fund Industry. DOI: https://doi.org/10.1111/j.1540-6261.2008.01410.x
The Journal of Finance, 6, 2629-2677.
Chevalier, J. and Ellison, G. (1997). Risk taking by mutual funds as a response to Incentives. DOI: https://doi.org/10.1086/516389
Journal of Political Economy, 105(6), 1167-1200.
Guercio, D. and Tkac, P. (2002). The determinants of the flow of funds of managed portfolios: DOI: https://doi.org/10.2307/3595011
Mutual funds vs. pension funds. Journal of Financial and Quantitative Analysis. 37(4),
-558.
Ferreira, M., Keswani, A., Miguel, A. and Ramos, S. (2012). The flow-performance relationship
around the world. Journal of Banking and Finance, 36(6), 1759-1780.
Gallaher, S., Kaniel, R. and Starks, L. (2006). Madison avenue meets wall street: Mutual fund
families, competition and advertising. Duke University, Working paper 44.
Gruber, M. (1996). Another puzzle: The growth in actively managed mutual funds. The Journal DOI: https://doi.org/10.1111/j.1540-6261.1996.tb02707.x
of Finance, 51(3), 783- 810.
Guercio, D. D. and Tkac, P. (2002). The determinants of the flow of funds of managed
portfolios: Mutual funds versus pension funds. Journal of Financial and Quantitative
Analysis, 37(4), 523-558.
Huang, J., Wei, K. and Yan, H. (2007). Participation costs and the sensitivity of fund flows to DOI: https://doi.org/10.2139/ssrn.567050
past performance. The Journal of Finance, 62(3), 1273-1311.
Ippolito, R. A. (1992). Consumer reaction to measures of poor quality: Evidence from the mutual DOI: https://doi.org/10.1086/467244
fund industry. Journal of Law and Economics, 35(1), 45-70.
Jun, X., Li, M. and Shi, J. (2014). Volatile Market condition and investor clientele effects on
mutual fund flow performance relationship. Pacific-basic finance journal, 29(1), 310-334.
Khan, S. N. and Noor, A. (2020). Flow performance relationship: Evidence from Pakistani
mutual funds. Journal accounting and Finance in emerging economies, 6(1), 145-154.
Mazur, M., Shoshan, G. and Zagonov, M. (2017). Comparing performance sensitivity of retail
and institutional mutual funds' investment flows, Finance research letters , 2017, 66-73.
Nanda, V., Wang, Z. J. and Zheng, L. (2004). Family Values and the Star Phenomenon:
Strategies of Mutual Fund Families. Review of Financial Studies, 17(3), 667–698.
Sirri, E. R., and Tufano, P. (1998). Costly search and mutual fund flows. Journal of Finance, DOI: https://doi.org/10.1111/0022-1082.00066
(5), 1589-1622.
Spitz, E. (1970). Mutual fund performance and cash inflows. Applied economics, 2(2), 141-145. DOI: https://doi.org/10.1080/00036847000000023
Zheng, L. (1999). Is money smart? A study of mutual fund investors' fund selection ability. The DOI: https://doi.org/10.2139/ssrn.7874
Journal of Finance, 54(3), 901-933.
Zitzewitz. E. (2006). How widespread late trading in mutual funds? American Economic Review, DOI: https://doi.org/10.1257/000282806777211892
(2), 284-289.
Copyright (c) 2022 Saleh Nawaz Khan, Javed Iqbal, Shahid Amin, Atif Rafique
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
CSRC Publishing and JAFEE adhere to Creative Commons Attribution-Non Commercial 4.0 International License. The authors, submitting and publishing in the Journal of Accounting and Finance in Emerging Economies published by CSRC Publishing, retain the copyright of their work and give the journal right to publish their work agreeing to the licensing policy under Creative Common Attribution-Non Commercial (NC-BY-NC 4.0) International. Under this license, the published authors let others remix, tweak, and build upon their work non-commercially. Yet all the other authors using the content of CSRC Publishing are required to cite author(s), journal name and publisher in their work. CSRC Publishing and JAFEE follow an Open Access Policy for copyright and licensing.
