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Determinants of mutual fund flows

Author

Listed:
  • Kopsch, Fredrik

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

  • Song, Han-Suck

    (Department of Real Estate and Construction Management, Royal Institute of Technology)

  • Wilhelmsson, Mats

    (Centre for Banking and Finance)

Abstract

The purpose of this paper is to study the determinants of aggregate fund flows to both equity and hybrid mutual funds. We 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. Our study relies on Swedish quarterly data on mutual fund flows over the period 1998 to 2013. The methodology is two-fold; through our structural models (AR(1)) we 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 (VAR) to test for Granger causality in order to determine the order of events. Similar to both Warther (1995) and Jank (2012), we only find support for the information-response hypothesis. Additionally, we 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. Our study contributes to the body of literature in two ways. First, it complements recent findings on determinants of mutual fund flows but we also add to the knowledge by included new macro financial variables describing the real economy. Secondly, the vast majority of previous studies have used US data, we add to that a deeper understanding of determinants of mutual fund flows in smaller economies by using Swedish data.

Suggested Citation

  • Kopsch, Fredrik & Song, Han-Suck & Wilhelmsson, Mats, 2013. "Determinants of mutual fund flows," Working Paper Series 13/13, Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance.
    • Handle: RePEc:hhs:kthrec:2013_013
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    More about this item

    Keywords

    Mutual fund flows; Sweden; Equity return;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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