Fund performance-flow relationship and the role of institutional reform

Feng, Jinyu; Wang, Wenzhao

Abstract

Extant literature shows the positive impact of institutional development on investor rationality and market efficiency. The authors extend this evidence by investigating the performance-flow relationship in the Chinese mutual fund market before and after the enforcement of the revised Law of the People’s Republic of China on Securities Investment Fund. Empirical evidence reveals that Chinese investors irrationally chase past star performers before institutional reform, but gradually become rational and less obsessed with star-chasing behaviors after reform. Moving one percentile upward in the relative performance among the star funds is associated with money inflows by 0.532% after reform, much lower than 1.433% before reform. The findings confirm the positive influence of institutional development on investor rationality and market efficiency. The successful experience can be borrowed by other emerging markets with less developed institutions.

Citation

Feng, J., & Wang, W. (2018). Fund performance-flow relationship and the role of institutional reform. Investment Management and Financial Innovations, 15(1), 311-327. https://doi.org/10.21511/imfi.15%281%29.2018.26

• Journal Article Type: Article
• Acceptance Date: Mar 7, 2018
• Online Publication Date: Mar 23, 2018
• Publication Date: Mar 23, 2018
• Deposit Date: Mar 4, 2022
• Publicly Available Date: Mar 4, 2022
• Journal: Investment Management and Financial Innovations
• Print ISSN: 1810-4967
• Electronic ISSN: 1812-9358
• Publisher: Business Perspectives
• Peer Reviewed: Peer Reviewed
• Volume: 15
• Issue: 1
• Pages: 311-327
• DOI: https://doi.org/10.21511/imfi.15%281%29.2018.26
• Public URL: http://researchrepository.napier.ac.uk/Output/2850180