ABSTRACT All the current moving in the financial market would be affected by the business cycle and the price the asset, Do all the investor realize the knowledge of the financial asset, and allocate their asset rationally or emotionally, even take the advice of the sales representative¡H After reading studies of mutual fund, For the purpose of realize the determinants of money flow, we combine the experience and econometrics and the opinion of market participants to undertake this study. In this study, we investigate the determinants of mutual fund flows from aggregate viewpoint. The empirical results are as follows: 1.The initial public offering of new fund have positive influence on the aggregate flow, no evidence that aggregate mutual fund flows have been affected by the stock return. 2.The stock returns with 1 month lag show no evidence to influence the flows, 3.Long-term real interest have obviously negative influence on the aggregate mutual fund and while short-tern interest does not. 4.Personal income positively related to aggregate mutual fund flows but not obvious for 1-month lagged income.

Theoretical models predict that ambiguity is an asset pricing factor in addition to risk, however few of them have been tested in the real market. This thesis tests one of the hypotheses that, investors’ propensity to invest in stocks is reduced when ambiguity in the marketplace increases. The hypothesis is tested by using equity fund flows and households’ equity holding as measurements of the market participation, and using dispersion in analysts’ forecasts about aggregate returns as measurement of ambiguity. The results confirm this hypothesis, since the increases in ambiguity are significantly and negatively related to equity fund flows, as well as the likelihood that the average household invests in equities. Moreover, the results also find that the fund flows in non-dividend paying stocks are more sensitive to the changes in ambiguity, and investors transfer capital from the equity market into more liquid asset classes during high-ambiguity periods. In addition, this thesis also tests whether there is heterogeneity in individuals’ ambiguity aversion, and examines the psychological roots of ambiguity aversion. FNE theory explains ambiguity aversion as the result of fearing negative evaluation from others. It predicts that married households are more ambiguity averse; while households with higher income and education, or households that are more mature, are less ambiguity averse. On the other hand, self-evaluation theory explains ambiguity aversion as the result of minimizing anticipated regret. It predicts that households that are more optimistic, or have less income, are less ambiguity averse; while households that have negative market experience, or have higher income, are more ambiguity averse. The results show that married households, or households with high income / negative market experience, are more ambiguity averse; and households that are more optimistic / more mature, are less ambiguity averse. Therefore, both theories have successful predictions, suggesting that the ambiguity aversion is the combined result of the two motivations.

My dissertation consists of two essays on mutual funds. The first essay examines the role of extreme positive returns on future fund flows using maximum style-adjusted daily returns (hereafter MAX) over the previous month. My results suggest that there is a positive and significant relation between MAX and future fund flows. The results are robust to controls for fund performance, fund size, age, turnover, fund fees, volatility, and skewness of fund returns. Of particular interest, this relation exits only in retail funds. Moreover, MAX is persistent from one month to the next, but MAX-based investment strategies are associated with lower risk-adjusted returns than investors could have achieved in otherwise similar funds. Overall, my analysis suggests that mutual fund investors are attracted to maximum style-adjusted daily returns, which is in line with the theoretical argument that investors exhibit a preference for lottery-like payoffs. These investors are successful in achieving a lottery-like return profile, but this strategy is costly in terms of expected returns The second essay studies the effect of recent and long-term mutual fund performance on future fund flows. I document that investors' response to recent performance depends on average long-term performance. In particular, a recent loser fund experiences outflows only if its longer-term performance is also poor. Similarly, recent good performance leads to more inflows only if the fund has also good long-run performance. In contrast, investors ignore recent performance if it provides a signal that conflicts with the longer-term signal. This implies that good fund managers with a longer-term focus will find it easier to attract future inflows than managers with a short-term horizon.

This thesis analyses and compares the performance, performance persistence and fund flows for UK equity unit trusts/OEICs and UK equity unit-linked personal pensions over the sample period January 1980 to December 2007. Unit-linked personal pension funds are an illiquid investment from the investor’s perspective since any invested capital is inaccessible until retirement whereas for unit trusts/OEICs capital invested can be withdrawn at any time. Since decreasing returns to scale from fund flows are the equilibrating mechanism in Berk and Green (2004) that results in no persistence in performance the illiquid nature of unit-linked personal pension funds should ensure more evidence of performance persistence in comparison to unit trusts/OEICs. I find significant evidence using performance ranked portfolio strategies that underlying portfolios that are only composed of unit-linked personal pension funds have greater performance persistence than unit-linked personal pension funds that have underlying portfolios that also include at least a unit trust/OEIC. This evidence is consistent with Berk and Green (2004) since the illiquid nature of personal pension funds results in an attenuated performance fund flow relationship restricting the equilibrating mechanism. However, there are anomalies in the performance persistence results in relation to Berk and Green (2004) but it could be due to the differential between the number of non-surviving unit trusts/OEICs and non-surviving unit-linked personal pension funds. I also find that the performance fund flow relationship based on abnormal returns from a Carhart four factor model for both UK equity unit trusts/OEICs and UK unit-linked personal pensions is convex but the performance fund flow relationship is more attenuated for the unit-linked personal pension funds. For the worst performing unit trusts/OEICs there are outflows on average whereas for unit-linked personal pensions there are fund inflows on average. For performance persistence tests conditional on underlying portfolio fund flows unit trusts/OEICs that have the worst performance but the lowest net fund flows in the ranking period have significantly greater subsequent performance in comparison to the unit trusts/OEICs that have the worst performance but the highest net fund flows in the ranking period. This empirical evidence provides support for Berk and Green (2004) but for the unit-linked personal pension funds the evidence is less convincing. There is very little evidence that UK equity unit-trusts/OEICs or UK equity unit-linked personal pensions produce abnormal returns. These results are robust across the single index (CAPM) model, the Fama and French three factor model and the Carhart four factor model for both conditional and unconditional models. There is also no evidence that unit trusts/OEICs or unit-linked personal pension funds can time the market. There is a significantly negative timing effect across unconditional factor models which becomes insignificant for the conditional models. There is also no evidence that unit trusts/OEICs have significantly different performance than unit-linked personal pension funds.

Prior studies have found that a firm advertising for one of its products not only can increase the sales of the advertised product, but also spill over the advertising effect by increasing sales of other existing products in the same brand. This study examines whether a fund family spending money on one of its managed funds can attract more money flows into the advertised fund and bring the advertising spillover effect that attract more money flows into other members in the same family. Under the assumption that a fund family is a risk aversion investor endowed with a negative exponential utility function, this study finds a theoretical allocation proportion for a fund family¡¦s spending on advertising of individual funds under management, which is the function of the fund family¡¦s risk aversion level and initial wealth, as well as the mean and the variance of the expected returns generated by individual funds¡¦ advertising and the advertising spillover effect. Empirically, the evidence shows that an advertised fund can significantly attract greater cash flows and bring the significant advertising spillover effect on cash flows of other individual funds in the same family. After grouping funds into lower-, mid- and higher-performing funds based on funds¡¦ past performance, the results indicate that an advertised fund with mid performance can attract greater cash flows than an advertised fund with higher and lower performance. Moreover, an advertised fund can bring stronger advertising spillover effect on cash flows of higher-performing funds than lower- and mid-performing funds in the same family. Regarding with the family cash flows, the evidence shows that a fund family¡¦s aggregating advertising expenditures on managed funds can significantly increase the family cash flows and the advertising effect on the family cash flows is stronger in large families than in small families. The empirical results suggest that a fund family can benefit from its advertising expenditures and which allocating higher proportion for advertising of mid-performing funds than higher-performing funds could attract money flows into its managed funds more efficiently.

ABSTRACT TWO ESSAYS ON MANAGERIAL BEHAVIORS IN THE MUTUAL FUND INDUSTRY LENG LING ESSAY 1: DOES MUTUAL FUND WINDOW-DRESSING PROMOTE FUND FLOWS? I investigate the effectiveness of window-dressing as a potential strategy to be used by mutual fund managers to promote fund flows. Using a rank gap measure as a proxy for the likelihood that window-dressing has occurred, I find that fund investors as whole punish those managers who are suspected to have engaged in window-dressing. That is, I find a negative relation between the window-dressing measure and net fund flows in subsequent quarters after controlling for fund performance, size, expense ratio, and other pertinent characteristics. I also find that window-dressing leads to higher trading activities and lower fund performance. ESSAY 2: A LIFE CYCLE ANALYSIS OF PERFORMANCE AND GROWTH IN U.S. MUTUAL FUNDS I propose a five-stage growth model to describe the life cycle evolution of mutual funds and show that mutual funds exhibit distinctive performance, size, expense ratios, asset turnover, and other pertinent characteristics through stages of incubation, high-growth, low-growth, maturity, and decline. I also investigate the viability of managerial strategies to affect a fund’s life cycle evolution and find that changing a declining fund’s investment objective is effective in rejuvenating asset growth and thus repositioning the fund to younger life cycle stages. However, the strategy of adding portfolio managers appears to have no such rejuvenation effect.

I study various aspects of mutual funds in my thesis. These are divided over four chapters. The first chapter is an introduction to the thesis and sets out an executive summary of my research. The second to fourth chapters each deal with a new concept. The second chapter shows that the sensitivity of an investor's reaction to a mutual fund's recent performance increases with the fund's historical performance. Put differently, bad (good) performance combined with a good-history for a fund results in a greater fraction of capital outflows (inflows) relative to a fund with a poor past history. The evidence is puzzling as we would expect investors to stick with a fund having a good-history, even after a single bad performance. I solve this problem using a model with investors of differing attentiveness. In equilibrium, fund owner's attentiveness increases the historical record of a fund. With this mechanism, the model can explain the higher sensitivity of outflows for higher reputation funds. The chapter is important in that it shows that return-chasing behavior is not ubiquitous. It also provides a clear evidence where the market is slow to incorporate the new information into decision making. The third chapter studies the managerial side of the mutual funds industry regarding the risk-taking behavior of the mutual funds. Mutual fund managers are compared against a benchmark or with the peers. The employment, as well as investor's capital flows, depends on how the manager fares in the competition. I present new evidence in the chapter that the exposure of a manager to these risks is heterogeneous, and manager's historical performance governs it. The evidence implies that the risk-appetite and behavior of a manager depends on his historical performance. I find strong support in the data for this hypothesis. I show that funds with poor historical performance do not boost the portfolio risk to catch up with the peers if they are lagging at the interim date. In general, the risk appetite of the poor-history manager is less driven by their interim performance. But the good-history managers respond to their midyear position and more so during the bull years. The evidence on risk-shifting is consistent with the evidence on how each incentive behaves for good and poor history managers over bull and bear phases. The fourth chapter shows that capital movement in and out of a mutual fund is more sensitive to fund performance during periods of high market volatility. I explain this result using a model where the manager has picking as well as timing skill. A volatile market presents an opportunity to generate timing value and to that extent produces speedy learning about managerial timing ability. Persistence in volatility boosts the sensitivity of flows to performance during such times. Given the counter-cyclical nature of market volatility, the model predicts that the flow sensitivity is higher during the recessions. Data supports the model prediction. The chapter provides a clear example when the trade volume (here capital flows) is linked positively with the volatility. Usually, literature has shown how the volatile periods slows the learning and hence trade volumes too. But my model indicates that there could be substantial learning going on during volatile times about critical economics parameters, mainly because those parameters are revealed only during volatile times.

In this dissertation, we examine whether the disposition effect, the tendency to sell winners and hold losers, exists among U.S. equity mutual funds and how the disposition effect influences fund performance and particularly flows. We find that a significant fraction (32%) of all funds exhibit some degree of disposition behavior. These funds underperform funds that are not disposition prone by 4-6% per year. Moreover, we find that the disposition effect has a significant impact on future fund flows. Without controlling for performance, disposition-prone funds experience 2-3% less flows each quarter than other funds. The difference in flows is probably due to poor performance of such funds. However, even after controlling for performance and other factors that potentially influence flows, funds with a high disposition effect experience 0.7-2% less flows than funds without such behavior. Past research has found that funds with low tax overhang garner larger inflows. Though disposition-prone funds are likely to have a lower tax overhang because they sell their winners quickly, we find that fund flows to disposition-prone funds are smaller than flows to non-disposition oriented funds after controlling for tax overhang. These results suggest that performance and tax efficiency as well as tax overhang are all important to mutual fund investors. / Ph. D.

Previous research has shown that expected market returns vary over time and that this variation can be predicted by variables such as dividend yields and book-to-market ratios (Fama and French (1989); Campbell and Thompson (2008)). Further, macroeconomic variables affect asset returns (Flannery and Protopapadikas (2002)). We investigate whether the investment decisions of mutual fund investors incorporate information about future stock returns contained in predictive and macroeconomic variables. If investors incorporate this information, then variation in flows should be related to that in predictive variables and macroeconomic variables. Using quarterly flow data from 1951Q4 to 2007Q4, we find that both predictive and macroeconomic variables have a relatively small impact on flows. Our results suggest that fund investors, as a group, fail to adequately incorporate the information contained in these variables. Existing literature documents that (i) an asymmetric low-performance relationship creates an incentive for managers to extract rents from shareholders, and (ii) managers respond to such incentives by strategically altering portfolio risk. Using the semiparametric regression model proposed by Chevalier and Ellison (1997), we show that the flow-performance relationship has become linear in recent years (2000-2009) and fund managers no longer respond to such incentives. Fund managers, however, change portfolio risk in response to past performance; such changes have a positive impact on fund performance and are indicative of a better alignment of interests between managers and shareholders. / Ph. D.

Studien undersöker om införandet av amorteringskravet och det skärpta amorteringskravet har påverkat hushållens allokering från finansiellt sparande till ett sparande i reala tillgångar, i detta fall bostäder. Studien använder sig av sekundärdata och har genom kvantitativa metoder analyserat fondflöden från 2013–2023. Tre regressionsmodeller framställs för att bedöma effekterna av amorteringskraven, dessa kompletteras även med tester för multikollinearitet och heteroskedasticitet för att säkerställa robusta resultat. Liknande studier skiljer sig åt i sina slutsatser där en studie konstaterar att amorteringskraven har minskat svenskars fondsparande. Samtidigt konstaterar en annan studie att ett amorteringskrav lett till en förmögenhetsökning. Livscykelhypotesen och mental bokföring är de centrala teorierna som används för att adekvat analysera resultaten av studien. Resultaten visar att det inte skett någon signifikant förändring i hushållens allokering av sparformer till följd av amorteringskraven. Det finns däremot indikationer som tyder på en ökning av totalt sparande. / The study examines how the introduction of the initial amortization requirement and the stricter amortization requirement have affected households’ allocation from financial savings to savings in real assets, in this case housing. The study uses secondary data and has analyzed fund flows from 2013–2023 through quantitative methods. Three regression models are produced to assess the effects of the amortization requirements, these are also complemented with tests for multicollinearity and heteroskedasticity to ensure robust results. Similar studies differ in their conclusion, where an earlier study states that the amortization requirements have reduced Swedes’ fund savings. At the same time another study state that the amortization requirements led to an increase in wealth. Central theories such as the life cycle hypothesis and mental accounting are used to adequately analyze the results of the study. The results show that there was no significant change in the households' allocation of saving forms as a result of the amortization requirements. However, there are indications of a potential increase in total savings.