Retail Fund Flows and Performance: Insights from Supervisory Data

Martin Hodula, Milan Szabo and Josef Bajzik

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper explores flow patterns in retail equity mutual funds related to past and future performance. We employ supervisory data of monthly fund inflows and outflows in the Czech Republic and produce several key findings that shed light on the behavior of households as investors in an emerging market economy. First, we show that investor flows chase past performance and tend to underreact to poor performance - a typical finding in the literature. However, we find that retail investors are very sensitive to poor performance in times of aggregate illiquidity and when investing in funds that hold more illiquid assets. Second, we document that when facing illiquidity and a deteriorating performance, underperforming equity-investing funds experience lower investor purchases and a larger share of redemption requests. We observe similar investor behaviour in periods when retail investors face constraints on their disposable income. At such times, mutual fund inflows are found to decrease significantly and fund outflows to increase. Third, we document the presence of the smart money effect, while finding that it is caused by the buying (but not selling) decisions of retail investors.

Keywords: Equity funds; liquidity; retail investors; smart money (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Date: 2022-12
New Economics Papers: this item is included in nep-fmk, nep-ifn and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Retail fund flows and performance: Insights from supervisory data (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2022/10

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