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Determinants of mutual fund flows

Fredrik Kopsch (Department of Real Estate Economics, KTH - Royal Institute of Technology, Stockholm, Sweden)
Han-Suck Song (Department of Real Estate Economics, KTH - Royal Institute of Technology, Stockholm, Sweden)
Mats Wilhelmsson (Center for Banking and Finance, KTH - Royal Institute of Technology, Stockholm, Sweden)

Managerial Finance

ISSN: 0307-4358

Article publication date: 12 January 2015

Abstract

Purpose

The purpose of this paper is to study the determinants of aggregate fund flows to both equity and hybrid mutual funds. The authors 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.

Design/methodology/approach

The study relies on Swedish quarterly data on mutual fund flows over the period 1998-2013. The methodology is twofold; through the structural models (AR(1)) the authors 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 to test for Granger causality in order to determine the order of events.

Findings

Similar to both Warther (1995) and Jank (2012), the authors only find support for the information-response hypothesis. Additionally, the authors 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.

Originality/value

The study contributes to the body of literature in three ways. First, it complements recent findings on determinants of mutual fund flows but the authors also add to the knowledge by included new macro financial variables describing the real economy. Second, the authors include a few additional variables. Third, the vast majority of previous studies have used US data, the authors add to that a deeper understanding of determinants of mutual fund flows in smaller economies by using Swedish data.

Keywords

Citation

Kopsch, F., Song, H.-S. and Wilhelmsson, M. (2015), "Determinants of mutual fund flows", Managerial Finance, Vol. 41 No. 1, pp. 10-25. https://doi.org/10.1108/MF-06-2013-0161

Publisher

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Emerald Group Publishing Limited

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