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Fund performance-flow relationship and the role of institutional reform
Feng, J. Wang, Wenzhao
Feng, J.
Wang, Wenzhao
Publication Date
2018-03
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© Jinyu Feng, Wenzhao Wang, 2018. This is an Open Access article,
distributed under the terms of the
Creative Commons Attribution-Non-
Commercial 4.0 International license (https://creativecommons.org/licenses/by-nc/4.0/),
which permits re-use, distribution,
and reproduction, provided the
materials aren’t used for commercial
purposes and the original work is
properly cited.
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openAccess
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07/03/2018
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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.
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Citation
Feng J and Wang W (2018) Fund performance-flow relationship and the role of institutional reform. Investment Management and Financial Innovations. 15(1): 311-327.
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Article