Determinants of mutual fund flows

Fredrik Kopsch, Han-Suck Song () and Mats Wilhelmsson
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Han-Suck Song: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Department of Real Estate and Construction Management , Royal Institute of Technology, Brinellvägen 1, 100 44 Stockholm, Sweden

No 13/13, Working Paper Series from Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

Abstract: The purpose of this paper is to study the determinants of aggregate fund flows to both equity and hybrid mutual funds. We test three hypotheses that help explaining the relationship between mutual fund flows and stock market returns, namely; the feedback-trader hypothesis, the price-pressure hypothesis and the information-response hypothesis. Our study relies on Swedish quarterly data on mutual fund flows over the period 1998 to 2013. The methodology is two-fold; through our structural models (AR(1)) we can say something regarding the relationship between mutual fund flows and financial macro variables. The analysis is further strengthened by utilizing a vector autoregressive model (VAR) to test for Granger causality in order to determine the order of events. Similar to both Warther (1995) and Jank (2012), we only find support for the information-response hypothesis. Additionally, we find new financial variables that have predictive power in determining mutual fund flows, namely; market fear (VIX), exchange rate, households’ expectation regarding inflation as well as outflows from mutual bond funds. Our study contributes to the body of literature in two ways. First, it complements recent findings on determinants of mutual fund flows but we also add to the knowledge by included new macro financial variables describing the real economy. Secondly, the vast majority of previous studies have used US data, we add to that a deeper understanding of determinants of mutual fund flows in smaller economies by using Swedish data.

Keywords: Mutual fund flows; Sweden; Equity return (search for similar items in EconPapers)
JEL-codes: E22 G02 G15 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2013-08-29
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Published as Kopsch, Fredrik, Han-Suck Song and Mats Wilhelmsson, 'Determinants of mutual fund flows' in Managerial Finance, 2015, pages 10-25.

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