Determinants of equity mutual fund flows – Evidence from the fund flow dynamics between Hong Kong and global markets

Tom Fong (), Angela Kin Wan Sze and Edmund Ho Cheung Ho

Journal of International Financial Markets, Institutions and Money, 2018, vol. 57, issue C, 231-247

Abstract: This paper identifies major determinants of equity mutual fund flows, which is essential for financial regulators and investors to understand potential sources of instability in domestic financial markets. Using a novel dataset of individual fund data and a fixed-effect quantile panel data regression, we find that fund flows to global equities outweigh other fund-specific factors, suggesting that, other things being equal, mutual funds’ portfolio rebalancing could strongly determine the direction and magnitude of mutual fund flows. Moreover, there are signs that the return-chasing behaviours of fund managers and investors amplify fund flows’ volatility in times of financial turbulence, resulting in a much stronger redemption of equity funds during market downturns. These findings underscore the importance of portfolio diversification and hedging strategies for fund managers and investors of mutual funds to avoid international financial contagion. They also draw an implication for introducing relevant macro-prudential tools to the asset management sector in Hong Kong to maintain financial stability.

Keywords: Mutual funds; Portfolio rebalancing; Panel data; Quantile regression; Time series analysis (search for similar items in EconPapers)
JEL-codes: C32 G23 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:57:y:2018:i:c:p:231-247

DOI: 10.1016/j.intfin.2018.09.001

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