Literature Review 1. the past fund performance 2. various fees ☆ Previous studies on mutual fund flows using US data have portrayed many interesting aspects of investor behavior. How about Taiwan? A stark different in the behavior of investors in Taiwan
Methodology 37 (Fixed sample ) 18 large mutual funds 17 small mutual funds 1995/11 ~ 1999/10 90 (Variable sample ) 70% general category 8% small stock 12% technology minimum of 1 year Open-end equity mutual funds (Taiwan Economic Journal)
Methodology Fama and MacBeth (1973) ☆ 1. past raw returns 2. risk-adjusted returns 3. fund rankings (SITCA) Total net asset divided by the number of investors, captures the structural factor of investors. Management fee divided by the net assets value. Intensity of trading activity of fund managers. Standard deviation of fund returns as fund’s total risk measure.
Results – Table 1 The summary statistics of the fixed samples Small-amount investors prefer large funds, while large-amount investors prefer small funds.
Results – Table 2 (Panel A) The yearly returns of the funds Fund managers tend to increase the systematic risk of his portfolio in response to market returns.
Results – Table 2 (Panel B) The persistence of mutual fund returns More persistence for funds that perform either well or poorly
Results – Table 3 The estimated result using the entire sample of Taiwan equity funds The fact that larger funds, which have larger aggregate flows, have smaller account sizes.
Results – Table 4 (Panel A) The regression results for inflows and outflows of large funds Large-fund investors tend to buy funds based on short-term gains and sell the funds to realize the short-term profit.
Results – Table 4 (Panel B) The regression results for inflows and outflows of small funds These investors do not realize short-term profits but hold onto funds with better performance.
Results – Table 5 The estimated for the year preceding the fund flows Nonsignificantly different from zero
Results – Table 5 The flows of large funds and small funds of management fees Investors of small funds invest more in funds with higher management fees.
Results – Table 6 The coefficients on the past returns Positive relation of large funds reflects their positive performance-inflow relation and that of small funds mirror their negative performance-outflow relation.
Conclusions Large-amount investors are more lenient to high management fees. Small-amount investors tend to buy large funds based on past short-term performance and sell to realize the short-term profit. Large-amount investors tend to buy small funds and hold on to the winners and redeem the losers.
Reflections The new aspect of the investors’ behavior in Taiwan is explored. Details of the test statistical analysis are clear.
“ Be fearful when others are greedy and greedy when others are fearful.” (Warren Buffett,1985)