Fund performance-flow relationship and the role of institutional reform

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Publication date
2018-03Keyword
Chinese mutual fund marketInstitutional reform
Investor rationality
Market efficiency
Performance-flow relationship
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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.Peer-Reviewed
YesOpen Access status
openAccessAccepted for publication
07/03/2018
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Show full item recordAbstract
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.Version
Published versionCitation
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.Link to Version of Record
https://doi.org/10.21511/imfi.15(1).2018.26Type
Articleae974a485f413a2113503eed53cd6c53
https://doi.org/10.21511/imfi.15(1).2018.26