Managers’ skills and fund flows in the Japanese mutual fund market
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 10 November 2021
Issue publication date: 17 June 2022
Abstract
Purpose
Mutual fund investors assess a fund manager’s skills when allocating their capital. To identify the rationale behind retail investors’ decisions, this study aims to examine the relation between mutual fund flows and abnormal returns (alpha), as well as the various risk factors in the Japanese mutual fund market, which has distinctive characteristics regarding investors and distributors.
Design/methodology/approach
Six standard asset pricing models are used to investigate how investors assess mutual fund managers’ skills: the market-adjusted return, the capital asset pricing model and the Fama–French three-factor model and its augmented versions.
Findings
Contrary to the literature, this study finds that investors in Japan mainly rely on alpha to assess mutual funds. In particular, investors respond to alpha for fund inflows and their evaluations depend on the market environment and their mutual fund search costs.
Originality/value
This study measures the response of investors to the skills of mutual fund managers in the Japanese market – especially for funds purchased through bank-related distributors that have aimed to capture inexperienced retail investors since deregulation in the 1990s – and reveals their high response to alpha.
Keywords
Acknowledgements
The authors thank Seiichiro Iwasawa, Takahiro Hattori, Yasuhitro Yonezawa, Joao Rafael Cunha and participants of the 2020 Japanese Economic Association autumn meeting, Nippon Finance Association 28th annual conference and Western Economic Association International virtual international conference 2021 for helpful comments and suggestions. This study is financially supported by JSPS KAKENHI (19K01766).
Kozo Omori and Tomoki Kitamura declare that they have no conflict of interest.
Citation
Omori, K. and Kitamura, T. (2022), "Managers’ skills and fund flows in the Japanese mutual fund market", Studies in Economics and Finance, Vol. 39 No. 4, pp. 675-696. https://doi.org/10.1108/SEF-05-2020-0147
Publisher
:Emerald Publishing Limited
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