The turn-of-the-year effect in mutual fund flows
Hyung-Suk Choi (),
Doojin Ryu () and
Sangik Seok ()
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Hyung-Suk Choi: Ewha Womans University
Doojin Ryu: Sungkyunkwan University
Sangik Seok: Korea Advanced Institute of Science and Technology
Risk Management, 2017, vol. 19, issue 2, 131-157
Abstract The seasonal regularity in cash flows to mutual funds remains a puzzle. In line with Choi (J Appl Bus Res 31(2):715–726, 2015), who observes the seasonality in cash flows in the U.S. domestic mutual fund industry, we find that the month of January is characterized by the highest net flows, and December, the lowest. Considering that mutual fund traders usually implement their investment decisions during the turn-of-the-year period, this study investigates the potential causes of this seasonal regularity. The seasonal component of investors’ asset-allocation decisions is not associated with the seasonal variations in personal income growth and consumption growth. Instead, the tax treatment of the distribution from mutual funds is likely to drive this seasonal pattern. We also find strong evidence that past performance affects the seasonality in the cash flows of equity funds. The “January effect” in the inflow to mutual funds is stronger for the funds with higher past performance. Interestingly, investors are not sensitive to the past performance when they buy style funds, but they sell the funds with poorly performed styles at the turn of the year.
Keywords: Mutual fund flows; Seasonality test; Turn-of-the-year effect; Investor behavior; Style funds (search for similar items in EconPapers)
JEL-codes: G11 G21 G23 (search for similar items in EconPapers)
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