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Flow-Performance Relationship and Star Effect: New Evidence from Chinese Mutual Funds

Author

Listed:
  • Xiao Jun
  • Mingsheng Li
  • Wu Yan
  • Rui Zhang

Abstract

In this paper, we reexamine the mutual fund flow-performance relationship and star effect using mutual funds in China that have unique features of high risk and low performance persistence. Confirming prior studies, we find that fund performance is positively related to flows in subsequent periods. However, our results show that funds that performed well in the past do not attract additional inflows after controlling for performance. In addition, a star fund, a fund with a five-star Morningstar rating, does not have any significant effect on the fund's flows. These results suggest that it is important to recognize the difference in investor groups and factors that affect performance persistence when analyzing the mutual fund flow-performance relationship.

Suggested Citation

  • Xiao Jun & Mingsheng Li & Wu Yan & Rui Zhang, 2014. "Flow-Performance Relationship and Star Effect: New Evidence from Chinese Mutual Funds," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 50(3), pages 81-101, May.
    • Handle: RePEc:mes:emfitr:v:50:y:2014:i:3:p:81-101
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    Citations

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    Cited by:

    1. Linn K. Aasheim & António F. Miguel & Sofia B. Ramos, 2022. "Star rating, fund flows and performance predictability: evidence from Norway," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 36(1), pages 29-56, March.
    2. You, Yu & Yu, Zongdai & Zhang, Wenqiao & Lu, Lei, 2023. "FinTech platforms and mutual fund markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 84(C).
    3. Dachen Sheng & Heather A. Montgomery, 2024. "Assessing Mutual Fund Performance in China: A Sector Weight-Based Approach," Mathematics, MDPI, vol. 12(16), pages 1-21, August.

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