Consumer reaction on tumbling funds - Evidence from retail fund outflows during the financial crisis 2007/2008

Daniel Schmidt () and Frank Schmielewski
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Daniel Schmidt: Leuphana University of Lüneburg, Germany
Frank Schmielewski: Leuphana University of Lüneburg, Germany

No 228, Working Paper Series in Economics from University of Lüneburg, Institute of Economics

Abstract: Contrary to the findings reported in some of the extant literature, our study indicates that over the past few years a change in investors’ behavior patterns means that investment decisions are made at short notice, and that shares are redeemed in a discriminatory manner when funds perform poorly. By using a data assembled from 1672 retail funds in Germany over the period March 2008 to April 2010, we are able to show that in general, both the prior fund performance and prior net redemptions have a statistically significant influence on fund outflows. Moreover, there are indications that in recent crises situations that have resulted in the withdrawal of shares investors react fast to market signals. Our findings will also highlight areas in which policy-makers, regulatory authorities and the fund industry should establish a strong regulatory framework to prevent liquidity shortages of retail funds.

Keywords: Liquidity risk; financial fragility; bank run; mutual funds; fund flows; net redemptions of fund shares; fund performance; fund industry; risk sharing (search for similar items in EconPapers)
JEL-codes: D53 G01 G14 G23 G28 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-01
New Economics Papers: this item is included in nep-ban
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