The impact of volatility and mutual fund fees on equity mutual fund flow-performance relationship in Thailand
Post by MSF Chula at Sunday, 10 January 2021 06:08 PM

This study examines the relationship between equity mutual fund flows and past performance in Thailand to investigate whether it is in a convexity shape meaning that the higher-performance funds tend to gain more new money invested in the funds rather than the lower-performance funds. Moreover, this study separates the sample into two groups which are mutual funds managed by subsidiaries of banks called “bank sample” and mutual funds not managed by subsidiaries of banks called “non-bank sample”. Also, full sample is investigated in order to measure the effect of all sample. Furthermore, the impact of volatility of past performance and fee charges namely expense ratio, front-end fee and back-end fee on flow-performance relationship are also conducted in this study. The results report that convexity seems to exist in all of sample types. However, the effect of non-bank sample is likely to be lower than the other two sample types, which is probably due to the customer behavior that tends not to follow the recently-outperform funds. Volatility is prone to make flow-performance relationship become less obvious for full sample and bank sample but it is not statistically significant for non-bank sample probably because of investors’ sophistication that they understand the volatility of fund quite well. For front-end fee and expense ratio from full sample and bank sample, they are incline to strengthen the obviousness of the relationship between mutual fund flow and past performance as they are likely to encourage more fund flow, while they are not statistically significant in non-bank sample potentially resulting from the difference of distribution channel between two groups and the customer base of non-bank sample that tends not to be persuaded to buy funds from advertisement which is a part of expense ratio. Furthermore, the result from back-end fee reports that it has no significant impact on the relationship of mutual fund flow and past performance. It is possible that the back-end fee rarely changes in Thailand, so it is not likely to have an explanation power on fund flow.

Last updated at Sunday, 10 January 2021 06:08 PM