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A Seemingly Unrelated Regression Analysis On The Trading Behavior Of Mutual Fund Investors

Author

Listed:
  • Wang , Nan-Yu

    (Associate professor, Department of Business and Tourism Planning Ta Hwa University of Science and Technology, Taiwan)

  • Sung, Sen

    (Chen Associate professor, Department of Risk Management and Insurance Feng-Chia University, Taiwan)

  • Huang, Chih-Jen

    (Professor, Department of Finance, Providence University, Taiwan)

  • Hsiao, Shih-Heng

    (Graduate student, Department of risk Management and Insurance Feng-Chia University, Taiwan)

Abstract

This paper provides a comprehensive investigation on the causality relationship between fund performance and trading flows. We analyze if investors behave asymmetrically in fund purchasing and selling by seemingly unrelated regression which comprises several individual relationships that are linked by the fact that their disturbances or the error terms are correlated. The empirical result shows a significantly negative relationship between fund performance and purchase flows for domestic funds. The magnitude of domestic funds redemption negatively affects current return, but not for international funds. As previousfund return positively affects current net flows,the further lagged performances have no significant impact on the trading flows, revealing that fund investors are sensitive only to short-term past performance. Most importantly, while negative fund performance leads to the increases in redemption, positive performance contrarily leads to the decreases in purchase. The evidences strongly indicate an asymmetry behavior of fund investors in the return-purchase causality relations.

Suggested Citation

  • Wang , Nan-Yu & Sung, Sen & Huang, Chih-Jen & Hsiao, Shih-Heng, 2016. "A Seemingly Unrelated Regression Analysis On The Trading Behavior Of Mutual Fund Investors," Journal of Economic and Social Development, Clinical Journals Press, vol. 3(02), pages 01-08, September.
    • Handle: RePEc:ris:joeasd:0140
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    References listed on IDEAS

    as
    1. Franklin Edwards & Xin Zhang, 1998. "Mutual Funds and Stock and Bond Market Stability," Journal of Financial Services Research, Springer;Western Finance Association, vol. 13(3), pages 257-282, June.
    2. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    3. Bolton, Ruth N., 1989. "Sales response modeling: Gains in efficiency from system estimation," Journal of Business Research, Elsevier, vol. 18(2), pages 107-125, March.
    4. Franklin Fant, L., 1999. "Investment behavior of mutual fund shareholders: The evidence from aggregate fund flows," Journal of Financial Markets, Elsevier, vol. 2(4), pages 391-402, November.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Fund performance; Fund flows; Trading behavior; Seemingly unrelated regression;
    All these keywords.

    JEL classification:

    • A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists

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