Structural VAR approach to mutual fund cash flows: Net flows, inflows, and outflows

Transcription

1 Suual VAR appoah o muual fund ash flows: Ne flows, inflows, and ouflows Bong Soo Lee Floida Sae Univesy Yeonjeong Ha, Koea Advaned Insue of Siene and Tehnology Miyoun Paek, Kwangsoo Ko Pusan Naional Univesy Absa In a dynami suual VAR famewok, we invesigae how muual fund ash flows espond o make volailies, make euns, and fund euns, using he daa of inflows and ouflows obained fom Fom N-SAR filings wh he SEC in he EDGAR sysem. We find ha make volaily (make eun) shoks have onempoaneous negaive (posive) effes on ne flows. Fund eun shoks have a signifian effe on ne flows fo moe han 64% of sample funds in eah fund syle goup. Logisi egession shows he impoane of divese fund haaeisis. Disposion effe of fund invesos depends also on fund haaeisis. JEL lassifiaion: G1, G11 Keywods: Muual fund ash flows, Suual VAR appoah, Volaily iming, Disposion effe Augus 214 *Bong Soo Lee, Pofesso of Finane, Floida Sae Univesy, Tallahassee, FL USA. [email protected]; Kwangsoo Ko, Assoiae Pofesso of Finane, College of Business Adminisaion, Pusan Naional Univesy, San 3, Jangjeon-dong, Geumjeong-gu, Busan, Republi of Koea. Tel: , e- mail: [email protected]. 1

2 Suual VAR appoah o muual fund ash flows: Ne flows, inflows, and ouflows 1. Inoduion A numbe of sudies have invesigaed he elaion beween fund euns and ne fund flows. A an aggegae make level, Wahe (1995) and Edelen and Wane (21) analyze his elaion using monhly and daily fequeny daa, espeively. A an individual fund level, Chevalie and Ellison (1997) and Sii and Tufano (1998) find a posive bu asymmei (o nonlinea) elaion beween lagged fund euns and ne flows. Edelen (1999) shows a negaive elaion beween abnomal euns and inveso flows. Lynh and Muso (23) develop a model o explain he nonlinea o onvex elaion beween pas euns and fund flows fo muual funds. Spiegel and Zhang (213) show ha his nonlinea elaion disappeas when he make shae of equy fund is used as a flow measue. Cao, Chang, and Wang (28) sudy he dynami elaion among make eun, make volaily, and aggegae muual fund flow using U.S. daily daa, whih is noable in ha hey sess he impoane of make volaily when analyzing fund flows. They show ha make volaily is negaively elaed o onuen and lagged fund flows. Edeingon and Golubeva (211) also find ha aggegae ne equy fund flows ae songly negaively oelaed wh hanges in VIX and posively wh euns, whih implies ha buy deisions ae diven mainly by euns and sale deisions by isk peepions. Reenly, Ben-Rephael, Kandel, and Wohl (212) invesigae aggegae monhly ne exhanges of equy funds, whih ae posively onuenly oelaed wh exess sok make euns and negaively wh hanges in VIX. A an individual fund level, Rakowski and Wang (29) examine he elaion beween 2

3 fund euns and fund flows by esimaing a edued-fom veo auo-egession (henefoh, VAR) model based on daily fequeny. Howeve, hey do no onside he onuen elaion. 1 Cashman, Nadai, Deli, and Villupuam (212a,b) fuhe analyze he elaion beween muual fund flows and pefomane by deomposing ne flows ino inflows and ouflows. Reenly, Johnson (21) shows ha boh new and old shaeholdes buy funds duing peiods of good euns, howeve, hei fund sales ae no elaed o fund euns. These sudies sugges ha hee exis dynami elaions among make euns, make volailies, fund euns and ash flows. In paiula, ash inflows and ouflows have been aely invesigaed in he same manne, whih implies ha ne flow analysis fails o undesand he deeminans of fund ash flows. In his espe, howeve, few sudies invesigae suh dynami elaions a an individual fund level. We invesigae he dynami elaions beween make volailies, make euns, fund euns, and ash flows by esimaing a suual VAR model, using no only ne flows bu also inflows and ouflows. Ou appoah diffes fom pevious sudies in ha he suual VAR model onsides onuen elaions as well as dynami elaions. Sine ou suual VAR model is a jus-idenified model, he esuls ae no dependen on he odeing of vaiables as in he onvenional VAR model ha uses he Choleski deomposion. We fous on idenifying he deeminans of muual fund ash flows whin a dynami suual VAR famewok and povide new empiial evidene using monhly muual fund ash flows (i.e., ne flows, inflows, and ouflows) fom Fom N-SAR filings wh he SEC in he EDGAR (Eleoni Daa Gaheing, Analysis, and Reieval) daabase. Ou findings ae summaized as follows. Fis, make volaily (make eun) shoks 1 In a subsequen sudy, Rakowski (21) finds a negaive onuen elaion beween fund euns and he volaily of flows. 3

4 have onempoaneous negaive (posive) effes on ne flows. This is mainly due o he onempoaneous posive effe of make volaily (make eun) shoks on ouflows (inflows). I is noed ha ouflows (inflows) ae lle affeed by make eun (make volaily) shoks. Tha is, make eun shoks have elaively song effes on inflows and elaively weak effes on ouflows, implying ha hey have posive effes on ne flow as a naual onsequene. The posive effe of volaily shok on ouflow an be explained by volaily iming by muual fund invesos. Seond, fund eun shoks have a saisially signifian effe on ne flows fo moe han 64% of sample funds in eah fund syle goup, bu his effe is somewha mixed in ems of he sign o dieion (i.e., posive o negaive). Thid, he logisi egession povides a paial explanaion fo he mixed effes of fund eun shoks on ash flows. Tha is, suh mixed effes may aise fom vaious fund haaeisis (e.g., size, age, eun volaily, ne flow volaily, aveage gowh ae of oal ne asse, and aveage eun). The pofolio analysis povides simila esuls. Finally, we find some evidene of he disposion effe fo boh gowh funds and mid- and small-ap funds. Fund haaeisis have impoan impliaions fo he disposion effe. Theefoe, his sudy onibues o he exan leaue by explaining he deeminans of equy fund ash flows in a dynami famewok using fund inflows and ouflows as well as ne flows. The es of his pape is oganized as follows: Seion 2 inodues he daa and vaiables. Seion 3 pesens he idenifiaion of he suual VAR model and disusses he hypohesis es. Seion 4 esimaes suual VAR models and analyzes dynami elaions based on he impulse esponse funion and vaiane deomposion. Seion 5 povides he esuls of he deeminans of fund ash flows and he hypohesis es. Seion 6 onludes he pape. 4

5 2. Daa and vaiables 2.1 Daa We obain he daa fom fou soues: Kenneh R. Fenh s webse, DaaSeam of Thompson Finanial, CRSP Muual Fund daabase, and he SEC EDGAR daabase. 2 We use fou vaiables in ou VAR model: make volaily, make eun (isk pemium), fund eun (isk pemium), and fund ash flows (ne flows, inflows, and ouflows). To ompue monhly make volaily and make isk pemium, we olle S&P 5 euns fom DaaSeam of Thompson Finanial and isk-fee aes (one-monh T-bill aes) fom Fenh s webse. Fom he CRSP Muual Fund daabase, we obain monhly euns and oal ne asses (henefoh, TNAs) fo individual funds. Conening ash flows, pevious sudies end o ompue o esimae ne flows of individual funds using fund euns and TNAs beause he CRSP daabase povides monhly fund euns and TNAs bu no ash flows. We do no use esimaed ash flows fom he CRSP daabase. Insead, we olle ash inflows and ouflows of individual funds fom Fom N- SAR filings wh he SEC in he EDGAR daabase and alulae ne flows by subaing ouflows fom inflows. A egulaion unde he Invesmen Company A equies Regiseed Invesmen Companies o file semi-annual epos (Fom N-SAR A/B) wh he SEC sine As a onsequene, his pape s analysis fouses on he U.S. domesi equy muual funds fo he sample peiod of Januay 1994 hough June 211. Fom N-SAR A/B filings povide deailed 2 Seveal een sudies use N-SAR filings wh he SEC o fuhe analyze fund haaeisis. See Wane and Wu (211), Edelen, Evans, and Kadle (211), Massa and Pagii (29), Cashman and Deli (29), Dass, Massa, and Pagii (28), Bis, Gullen, Kadiyala, and Rau (27), Almazan, Bown, Calson, and Chapman (24), Deli (22), and Deli and Vama (22). 3 The EDGAR sysem has povided muual fund infomaion sine Aoding o he SEC, muual funds wee phased in o EDGAR filing ove a hee-yea peiod, ending May 6,

6 infomaion on divese fund haaeisis a he seies level. Edelen, Evans, and Kadle (211) menion ha, beause of he ommon dae of fund inepion, a fund seies is omposed of one o moe funds. Suh seies ae efeed o as single- o muli-fund seies. A muli-fund seies may have diffeen ypes of funds suh as equy, bond, and balaned funds. Founaely, Fom N-SAR A/B filings povide ash inflows and ouflows based on eah fund ype, alhough some ems suh as bokeage ommissions ae epoed a he seies level. Theefoe, he numbe of sample funds is no influened by he ype of fund seies in his sudy. We use boh Fom N-SAR A and B filings beause eah filing onains six-monh exlusive daa on ash inflows and ouflows fo a fisal yea. Following Edelen, Evans, and Kadle (211), we define a fund a he pofolio level o inlude all shae-lasses in he fund. Beause he CRSP daabase onains vaious fund daa a he level of shae-lass, we aggegae all he shae-lass TNAs o ompue he TNAs of a fund. 4 We also ompue TNA-weighed monhly aveage euns fo he fund o mah CRSP daa o EDGAR ash flows. As in pevious eseah, we mege CRSP fund daa wh EDGAR daa manually by mahing fund names beause CRSP fund odes ae no diely elaed o N-SAR fund odes of he CIK (enal index key). To deemine he syle of a fund based on he CRSP sandad, we use Saegi Insighs lassifiaion fom Januay 1994 o June 1998 and Lippe lassifiaion fom July 1998 o June 211. We lassify odinay domesi equy funds ino hee syles: gowh funds, gowh and inome funds, mid- and small-ap funds. 5 When we exlude ETFs and index funds, we 4 Nanda, Wang, and Zheng (29) sudy he inoduion of muliple-lass funds aefully. 5 Aoding o he Saegi Insighs lassifiaion fom Januay 1994 o June 1998, AGG and GRO ae seleed fo gowh funds; GRI and ING, fo gowh and inome funds; and GMC and SCG, fo mid- and small-ap funds. Based on he Lippe lassifiaion fom July 1998 o June 211, CA and G ae seleed fo gowh funds; GI, EI, and I, fo 6

7 obain a oal of 17,4 domesi equy shae-lasses o funds ha mainain hei syles duing he sample peiod (Januay 1994 hough June 211) in he CRSP daabase. These 17,4 shaelasses o funds belong o 5,817 individual funds beause an individual fund may have seveal shae-lasses. Among he 5,817 domesi equy funds, 4,726 funds mah EDGAR daa. We apply he same mahing poess o index funds. As a esul, we obain 4,726 odinay domesi equy funds (1,984 gowh funds, 1,451 gowh and inome funds, and 1,291 mid- and small-ap funds) and 29 index funds. Fom he 4,726 odinay domesi equy funds and 29 index funds, we exlude hose funds wh ouigh eos (e.g., ne flows less han -1%), all TNAs less han $1 million, and missing obsevaions fo moe han 24 monhs. Afe seleing appopiae funds, we exlude ealie obsevaions fo a fund if s TNA does no exeed $1 million, and lae obsevaions if he fund s TNA falls below $1 million and neve omes bak. Though his seening poess, we obain a oal of 4,44 aively managed domesi equy funds and 272 index funds. To esimae suual VAR models, we sele hose funds whose duaion exeeds 1 yeas, whih onsideably edues he numbe of sample funds. Finally, we obain he following sample funds: 862 aively managed domesi equy funds (331 gowh funds, 258 gowh and inome funds, and 273 mid- and small-ap funds), and 67 index funds Vaiables We employ fou vaiables fo ou VAR model: make volaily, make isk pemium, fund isk pemium, and fund flows (ne flows, inflows and ouflows). To ompue monhly make volaily, we use he volaily measue poposed by Fenh, Shwe, and Sambaugh gowh and inome funds; and MC, SG, and MR, fo mid- and small-ap funds. 6 Fo he final se of mahed funds, we obain almos he same aveage ne flow (.19) beween CRSP and EDGAR daa, whih implies ha he mahing is appopiae. 7

8 (1987) o ake he effe of non-synhonous ading ino aoun. 1 N 2 N 1 2 d 2 d d 1 d1, (1) d1 whee d = daily eun of S&P 5 index on day d in monh, and N = he numbe of days in monh. follows: Monhly make and fund isk pemiums ( and, espeively) ae ompued as R, (2) f R, (3) f whee R = aw eun of S&P 5 index in monh, f = isk-fee ae in monh, and R = aw eun of he i h fund in monh. The las vaiable we onside is ash flow of an individual fund. Hee, ash flows onsis of ne flows, inflows, and ouflows. Unlike pevious eseah fousing on ne flows, we invesigae hese hee ypes of ash flows, sepaaely. The following measues define monhly inflows, ouflows, and ne flows of individual funds: in_f = inflow /TNA -1, (4) ou_f = ouflow /TNA -1, (5) ne_f = in_f ou_f, (6) whee inflow = new sales in he i h fund in monh, ouflow = edeemed ash in he i h fund in monh, TNA = oal ne asses of he i h fund a he end of monh, in_f = inflow of he i h fund in monh, ou_f = ouflow of he i h fund in monh, and ne_f = ne flow of he i h fund in monh. We use he above fou vaiables o esimae suual VAR models. Fo lay, we 8

9 now use make and fund euns fo make and fund isk pemiums, espeively. Table 1 shows he desipive saisis fo fund euns and ash flows and hei oelaions wh make volaily and make euns fo mahed sample funds. As expeed, mid- and small-ap funds show he highes aveage mean eun (.6) and volaily (.617) beause hei omponen soks ae iskie han hose of ohe fund syle goups. Exep fo index funds, ne flows have posive aveage means bu negaive aveage medians. Tha is, alhough he numbe of negaive ne flows is geae han ha of posive ne flows fo eah fund, he sum of posive ne flows exeeds he absolue value of he sum of negaive ne flows. <Inse Table 1 hee> Fo all fund syle goups, fund euns, on aveage, ae negaively oelaed wh make volaily and posively oelaed wh make euns and hei oelaions ae signifian. The esuls indiae negaive (posive) aveage oelaion oeffiiens beween ne flow and make volaily (make and fund eun), alhough hey ae no saisially signifian. While inflows and ouflows ae no saisially signifianly oelaed wh make and fund euns, is noed ha hei oelaions wh make volaily ae posive bu somewha diffeen in hei magnude. Only ouflows have saisially signifian oelaions wh make volaily fo all funds, exep fo index funds. We now povide moe igoous evidene of hese elaions based on he suual VAR model analysis. 3. Modeling a suual VAR model fo ash flows 3.1 A suual VAR model This sudy invesigaes he dynami elaions beween make volaily, make eun, 9

10 fund eun, and ash flows ha inlude ne flows, inflows, and ouflows. Fo he analysis, we popose he following suual VAR model. K Suual fom: By k y-k, (7) y whee T k1 f f, T, = make volaily in monh, = make eun in monh, = eun of he i h fund in monh, f = ash flow of he i h fund in monh, B = maix of onuen elaions among he fou vaiables, Γ k = oeffiien maix of he lag-ode k, and ε = veo of unexpeed andom shoks in monh. In equaion (7), andom shoks ae independen of one anohe suh ha hei oelaion oeffiiens ae all zeo. Pe-mulipliaion by B -1 o equaion (7) podues he following VAR model in s edued fom. Redued-fom: y A(L)y e, (8) 1 k k 1 whee A (L) A ij(l) aijl fo i,j=1, 2, 3, and 4, (9) k σ f e [ ] T = e e e e = B -1 C = f, (1) Va (e). (11) Re-aanging equaion (8), we obain he following moving-aveage poess: 1

11 y -1 I A(L)L e I A(L)L C C C C (L) (L) (L) (L) C C C C (L) (L) (L) (L) C C C C (L) (L) (L) (L) -1 C C(L) C C C C (L) (L) (L) (L) f (12) If eah andom shok is nomalized, he ovaiane maix of andom shoks is an ideny maix. Then, fom equaion (1) (i.e., e C ), by aking vaiane of eah side of he equaion, we an expess he ovaiane maix of edued-fom VAR eos as follows. T C C. (13) 3.2 Idenifiaion and ess of saisial signifiane Given he esimae of he ovaiane maix ( ) of he esiduals in equaion (8), we an solve equaion (13) o idenify he elemens of he C maix, whih has sixeen unknown elemens. Howeve, he ovaiane maix povides only 1 elemens beause of s symmei suue. Theefoe, we need six addional esiions fo jus-idenifiaion. Fis, he following model of make euns in Meon (198) implies ha unexpeed shok of make eun is independen of make volaily., (14) whee = make isk pemium in monh, = make volaily in monh, = unexpeed shok of make eun. Tha is, is independen of, whih means ha unexpeed shok of make eun ( esidual of make volaily ( e ) in equaion (1) has no onempoaneous effe on he ). This implies he following esiion: 12. (15) 11

12 In addion, eun and ash flow shoks fo individual funds have no eason o simulaneously affe he esiduals of make volailies and make euns, whih leads o he following fou esiions: 13, 14, 23,. (16) 24 In ems of he onuen elaion beween ash flows and fund euns, ash flow shoks may affe he esiduals of fund euns. A an aggegae make level, Ben-Rephael e al. (211, 212) show ha he ash flow of equy funds has a empoay effe on make euns. Joikashia, Lundblad, and Ramadoai (212) fuhe find ha he ash flow of inenaional funds also has a empoay pie pessue effe on loal make euns. A an individual fund level, Coval and Saffod (27) unove he pie pessue effe of fie sales on sok euns. Aoding o Coval and Saffod (27), he effe of ash flow shok on fund euns should be empoay beause an equy fund is jus a pofolio of individual soks. Theefoe, we employ he esiion of Blanhad and Quah s (henefoh, BQ, 1989) empoay effe fo 34. Aoding o BQ (1989), we ge he following esiion: k 34(L) L1 C34(1) 34 k C. (17) The esiion in equaion (17) implies he following esiion on he VAR oeffiiens: C 34 (1) I A(1) 3114 I A(1) 3224 I A(1) 3334 I A(1) 1 1 I A(1) I A(1), (18) sine and Theefoe, he BQ esiion implies he following: 12

13 I A(1) (19) 1 I A(1) As a esul, we obain he following jus-idenified fou vaiable MAR (moving aveage epesenaion): e e e f e = BQ 44 f. (2) The dynami effe of he j h vaiable shok (o innovaion) on he i h vaiable is denoed by C ij (L), whih onsiss of he onempoaneous effe ( ij ) and dynami (lagged) effes ( k ij, k=1,,k). Afe jus-idenifying he suual VAR model, we es he signifiane of esimaed oeffiiens o effes. Hee we fous on he effes of make volaily, make eun, and fund eun on fund ash flows. To es he signifiane of he onempoaneous effe (o oeffiien) as well as he dynami (lagged) effe of he j h shok on ash flows, we look a 4 j as well as k fo j=1, 2, and 3, and k 1. We employ he following likelihood aio es o see he 4 j signifiane of he effe. 2 J (df ) 2(ln LH ln LH ), (21) whee 2 (df ) = 2 saisi wh a degee of feedom (df), LH = likelihood of an ove-idenified model, and J LH = likelihood of a jus-idenified model. 4. Esimaion of suual VARs 4.1 Esimaion and onempoaneous elaions 13

14 To esimae he suual VAR model in equaion (7), we fis esimae he edued-fom VAR model in equaion (8) by odinay leas squaes mehod fo individual funds. We sele he opimal lag lengh fo eah VAR model based on he Akaike infomaion and Shwaz Bayesian eia. Fo eah fund, we hoose highe lag-ode beween he wo opimal lags. Eah VAR model has s own lag-ode. Thei odes ange mainly fom one o hee. The esimaion of equaion (8) podues a ovaiane maix of edued-fom VAR eos, Va(e )=. We deompose he ovaiane maix ( ) wh he above six esiions imposed (i.e., equaions (15)-(17)) o obain he oeffiien ( ij ), whih epesens he onempoaneous effe of he j h shok on he i h vaiable. We esimae he suual VAR model in equaion (7) fo 331 gowh funds, 258 gowh and inome funds, 273 mid- and small-ap funds, and 67 index funds. Panel A of Table 2 shows he aveage onempoaneous effes of andom shoks on he fou vaiables (i.e.,,,, f ) in eah fund syle goup. Beause he oeffiiens in Panel A ae he aveage values fo vaious fund syle goups, hey ould be onsideed he aveage effes of eah shok on he fou vaiables. The aveage effe of make volaily shok on make eun (i.e., 21) is negaive aoss all fund syle goups. As in Fenh, Shwe, and Sambaugh (1987), make euns ae affeed by unexpeed andom shoks of volaily. 7 Alhough no epoed hee beause of spae limaions, he oeffiiens ae saisially signifian fo all funds. Similaly, volaily shoks have a negaive effe on fund euns fo all he fund syle goups. 8 Make eun shoks have a posive effe on fund euns fo all fund goups. <Inse Table 2 hee> In his sudy, we fous on he effes of eah shok on fund ash flows. Aoss all fund 7 See Table 4 in Fenh, Shwe, and Sambaugh (1987). 8 Alhough no epoed hee, he oeffiiens fo all funds ae saisially signifian. 14

15 goups, make volaily (eun) shoks have negaive (posive) aveage effes on ne flows onempoaneously. Ben-Rephael, Kandel, and Wohl (212) find posive (negaive) onempoaneous oelaions beween aggegae ne exhanges of equy funds and exess sok make euns (hanges in VIX). Edeingon and Golubeva (211) show simila esuls. This pape s esuls ae onsisen wh hei findings. 9 In Panel B, howeve, he signs of effes ae mixed, and heefoe we anno make any lea infeene on he effes of make volaily (eun) shoks on ne flows. I is noed ha negaive (posive) signs ae muh moe likely han posive (negaive) ones fo he effes of make volaily (make eun) shoks on ne flows. We also find he mixed signs fo he effes of fund eun shoks alhough hey ae moe likely o be posive. Beause we ompue ne flow by subaing ouflows fom inflows, we an deemine he dive of he effes of andom shoks by analyzing fund inflows and ouflows sepaaely. 4.2 Impulse esponse analysis and vaiane deomposion Dynami effe analyses based on impulse-esponse funions show he esponses of he fou vaiables o individual shoks in he fuue as follows: h-sep ahead esponse of y o = y h, h =, 1, 2, 3,, (22) y whee T f f, and T. The above equaion efes o h- sep ahead esponses of eah vaiable o individual shoks. Though an impulse-esponse analysis, we an deemine he lengh, magnude, and dieion of he effe of eah shok on 9 Cao, Chang, and Wang (28) examine he dynami elaion beween aggegae muual fund flow and makewide volaily using daily fund flows, and find ha make volaily is negaively elaed o onuen and lagged flows. 15

16 eah vaiable. Fo eah fund syle goup, Figue 1 shows he aveage esponses of ash flows o individual shoks exep fo hei own shoks beause hei effes fa exeed hose of ohe shoks. To bee undesand he dynami behavio of ash flows hough a gaphial epesenaion, we hee deompose ash flows ino ne flows, inflows, and ouflows. The paens of aveage esponses of ne flows in Panel A ae vey simila o hose of inflows in Panel B bu no o hose of ouflows in Panel C beause ne flows ae alulaed as inflows minus ouflows. Fund eun shoks have a signifian posive effe on inflows, and hei effes ae moe pesisen han hose of ohe shoks exep fo hose of index funds. Ineesingly, afe one peiod (o monh), inflows ae highly esponsive o fund eun shoks in he posive dieion. 1 This is evidene of fund inveso s posive feedbak ading a he level of individual funds. This finding is somewha diffeen fom he posive feedbak ading found in pevious sudies in ha we analyze inflows (no ne flows) of individual muual funds in a dynami onex. In addion, make eun shoks have posive effes on inflows. On he ohe hand, make volaily shoks have saisially signifian posive effes on ouflows wheeas hey have elaively lle effe on inflows. In geneal, make eun shoks have negaive effes on ouflows. Fund eun shoks have elaively lle effe on ouflows alhough hey have posive onempoaneous effes exep fo index funds. The esuls indiae diffeen esponse behavio of ne flows fo index funds. Panel A shows ha, on aveage, hei ne flows ae sensive o make and fund eun shoks. Make 1 Wahe (1995) finds evidene of a negaive elaion beween euns and subsequen ne flows, whih an be efeed o as negaive feedbak ading when using aggegae monhly ne flows and make euns. Edelen and Wane (21) show posive feedbak ading in aggegae daily ne flows. A he level of individual funds, Sii and Tufano (1998) find posive feedbak ading fo muual fund invesos in he onex of ne flows. 16

17 volaily shoks have elaively lle effe on ne flows, and simila paens ae obseved fo inflows in Panel B. Howeve, make volaily shoks ae, on aveage, mos likely o have a saisially signifian posive effe on ouflows in Panel C, whih is also he ase fo he ohe fund syle goups. <Inse Figue 1 hee> We examine he elaive impoane of eah shok in eah vaiable s vaiaion ove ime by deomposing s foeased eo vaiane fo he ase of ne flows only. Moe speifially, we deompose he foeased eo vaiane of eah vaiable ino fou pas explained by shoks: make volaily, make eun, fund eun, and fund flows. Panels A hough D of Table 3 show he aveage esuls of he vaiane deomposion analysis aoss all fund syle goups. In mos ases, eo vaianes onvege whin 12 seps o monhs. On aveage, 8% and 17% of he eo vaianes of make volaily ae explained by s own shoks and make eun shoks, espeively, fo all fund syle goups. As expeed, lle is explained by fund eun and ne flow shoks. As in he ase of make volaily, he eo vaiane of make euns is explained mainly by hei own and make volaily shoks. Fund eun and ne flow shoks onibue lle o foeasing he eo vaiane of make euns. <Inse Table 3 hee> Fund euns show slighly diffeen paens. The eo vaiane of fund euns is lagely explained by make eun shoks, bu paly by hei own and make volaily shoks. I is noed ha, unlike in he ase of make euns, hei own shoks do no epesen he mos impoan onibuing fao in explaining he eo vaiane of fund euns. An ineesing phenomenon fo index funds is ha fund eun shoks onibue he leas o hei own eo vaiane among all fund syle goups. This implies ha index fund euns ae explained lagely 17

18 by make eun shoks, no by hei own shoks. This may be a naual onsequene of index funds, whih ak movemens of a make index like S&P 5 beause hei bea ages 1.. Ne flow shoks onibue lle o he eo vaiane of fund euns. Finally, he eo vaiane of ne flows is explained lagely by hei own and fund eun shoks. Make volaily and make eun shoks onibue lle o he vaiane. In paiula, he eo vaiane of ne flows is explained moe by fund eun shoks fo he index fund goup han fo he ohe fund syle goups. This implies ha fund eun shoks ae an impoan onibuing fao o ne flows of index funds alhough hei own shoks ae he mos impoan fao. 5. Empiial evidene on ash flows 5.1 Hypohesis ess fo ne flows The above analysis is based on aveage esponses of individual funds in eah fund syle goup. To fuhe analyze he elaions beween fund ash flows and ohe vaiables, we now fous on he saisial signifiane of individual funds. Table 4 shows he esuls of hypohesis ess fo ne flows, whih ae divided ino hee pas: he effes of make volaily, make eun, and fund eun on ne flows, espeively. Fo j=1, 2, and 3, 4 j is he onempoaneous effe of he j h shok on ne flows, and k 4 j is he dynami (lagged) effe of he j h shok on ne flows in k peiods. We es hypoheses by hei own 2 saisis wh appopiae degees of feedom. The oveall effe of he j h vaiable on ne flows is measued by C 4 j (L), whih inludes onempoaneous and lagged effes. We es he oveall effe by he sum of wo independen 2 saisis fo onempoaneous and lagged effes. 18

19 As shown in Panel A of Table 4, make volaily has saisially signifian oveall effes on ne flows fo 36% o 43% of individual funds aoss all fund syle goups. Exep fo index funds, make volaily shoks have saisially signifian onempoaneous effes on ne flows fo 16% o 17% of funds aoss all fund syle goups, and make volaily also has signifian lagged effes on ne flows fo a simila peenage of funds. An ineesing finding hee is ha mos of he signifian oeffiiens have he negaive sign, whih implies ha make volaily shoks have deimenal effes on ne flows. In onas, ne flows of all index funds wh signifian onempoaneous effes espond posively o make volaily shoks fo a small poion of index funds, whih is no onsisen wh he esuls fo aively managed funds. In volaile makes, muual fund invesos seem o hoose passively managed funds, no aively managed ones. <Inse Table 4 hee> The effes of make euns in Panel B ae vey diffeen fom hose of make volaily in Panel A. The oveall effes of make euns on ne flows ae saisially signifian fo 39% o 47% of individual funds aoss all fund syle goups. Make euns have a signifian dynami (lagged) effe on ne flows fo 2% o 3% of funds. Make eun shoks have signifian oempoaneous effes fo 19% o 22% of funds exep fo index funds. Mos of he signifian oeffiiens have posive signs, whih implies ha make eun shoks have favoable effes on ne flows. These esuls, ogehe wh he afoemenioned ones, indiae ha make eun shoks have a posive effe on ne flows, wheeas make volaily shoks have a negaive effe. The eason behind his phenomenon migh be explained by deomposing ne flows ino inflows and ouflows. As in he ase of aively managed funds, ne flows of all index funds wh signifian onempoaneous oeffiiens espond posively o 19

20 make eun shoks. Tha is, hee is no signifian negaive effe fo index funds. In ems of he effes of fund euns on ne flows in Panel C, he esuls indiae a muh highe level of saisial signifiane. The oveall effe is saisially signifian fo 67% o 76% of individual funds aoss all fund syle goups. Fund euns have signifian dynami (lagged) effes fo 27% o 38% of funds, and hese effes also efle a highe level of signifiane han hose of make volaily and make eun. I is noed ha fund eun shoks have a signifian onempoaneous effe on ne flows fo moe han 64% of funds aoss all fund syle goups. Howeve, is puzzling why signifian onempoaneous oeffiiens ae ehe posive o negaive, alhough he numbe of signifian posive oeffiiens fa exeeds ha of negaive ones. These esuls ae somewha diffeen fom he findings of Chevalie and Ellison (1997) and Sii and Tufano (1998) ha show pas euns ause ne flows o be in he same dieion bu in an asymmei way, beause we invesigae he onempoaneous elaion as well as dynami (lagged) effes beween unexpeed fund euns and ne flows. To fuhe invesigae he above findings, we deompose ne flows ino inflows and ouflows o bee undesand his phenomenon. 5.2 Inflow and ouflow analysis As explained befoe, we obain ne flows by subaing ouflows fom inflows. If a shok affes inflows and/o ouflows, hen s effe on ne flows is jus a diffeene beween s effes on inflows and ouflows. Only a limed numbe of sudies have invesigaed inflows and ouflows due o he lak of long ime seies of inflows and ouflows. Using Fom N-SAR daa in he SEC EDGAR daabase, his sudy analyzes ash inflows and ouflows of individual muual funds. Hee, we fous on he onempoaneous effes of he hee ypes of shoks on inflows and ouflows given hei mixed onempoaneous effes on ne flows. 2

21 Panel A of Table 5 shows he onempoaneous effes of make volaily shoks on inflows and ouflows aoss fund syle goups. Make volaily shoks have a saisially signifian effe on inflows only fo a low peenage of funds aoss all fund syle goups. The numbe of posive oeffiiens exeeds ha of negaive ones exep fo mid- and small-ap funds. Relaively weak effes of make volaily shoks on inflows ae easily expeed beause hei effes on ne flows ae lagely negaive as shown in Table 4. The esuls fo ouflows lealy demonsae why make volaily shoks an have a negaive effe on ne flows. Make volaily shoks have a signifian posive effe on ouflows fo 19% o 3% of funds in eah aively managed fund goup. Few funds show signifianly negaive effes of make volaily shoks on ouflows. As a onsequene, ne flows ae affeed by make volaily shoks in he oppose dieion. This an be inepeed as he volaily iming by muual fund invesos. Busse (1999) shows ha fund manages deease make exposue when make volaily is high, whih is alled he volaily iming by fund manages. Hee, we obseve volaily iming due o invesos ash ouflows, ahe han due o fund manages aions. Ou finding indiaes ha muual fund invesos y o ime make volaily by ineasing ash ouflows when unexpeed volaily is high. On he ohe hand, make volaily shoks have posive effes on boh inflows and ouflows of index funds. Tha is, unexpeed make volailies may dive posively boh inflows and ouflows simulaneously fo a small poion of index funds. Despe hese posive effes on boh inflows and ouflows, ne flows ae likely o espond posively o make volaily shoks in a saisial sense as shown in Panel A of Table 4. This implies ha posive effes on inflows ae songe han hose on ouflows in magnude. 21

22 <Inse Table 5 hee> In onas, make eun shoks have saisially signifian effes on inflows han make volaily shoks fo all fund syle goups. Moe speifially in Panel B, make eun shoks have signifian effes on inflows of moe han 2% of funds fo eah aively managed fund goup. Mos of signifian oeffiiens have he posive sign, whih implies ha inflows move onuenly wh unexpeed make euns even hough hei effes may pesis. This suggess ha he elaion beween ne flows and make eun shoks in Table 4 deives mainly fom ha beween inflows and make eun shoks. Meanwhile, make eun shoks ae muh less likely o have a signifian effe on ouflows han make volaily shoks. Even in his ase, he signs of oeffiiens ae mixed in simila peenages. In sum, make eun shoks have elaively song effes on inflows and elaively weak effes on ouflows, implying ha hey have posive effes on ne flows as shown in Table 4. Panel C shows he effes of fund eun shoks on inflows and ouflows. As expeed, fund eun shoks have saisially signifian effes on inflows and ouflows fo 58% o 69% of funds in eah fund syle goup. Howeve, he signs of he oeffiiens ae mixed. These mixed effes of fund eun shoks ae unexpeed beause hey ae no onsisen wh he onvenional belief ha fund eun shoks have posive (negaive) effes on inflows (ouflows). Negaive oeffiiens show a sizable peenage even in he ase of inflows, alhough posive oeffiiens ae moe han negaive ones. This means ha inflows of eah fund may espond diffeenly o fund eun shoks aoding o fund haaeisis, whih waans fuhe analysis. In he ase of ouflows, he peenage of posive oeffiiens exeeds ha of negaive ones exep fo index funds. A signifian posive oeffiien implies ha unexpeed fund 22

23 euns have a posive effe on ouflows, whih implies ha invesos end o sell unexpeed winne funds and eain unexpeed lose funds. Alhough his efles he aggegae behavio of invesos fo some funds, we an inepe his phenomenon as evidene of he disposion effe. Ivkovi and Weisbenne (29) fail o find he disposion effe fo muual fund invesos. Ou viewpoin is diffeen fom ha of ohe sudies in his egad. Some invesos may show suh behavio as he disposion effe when invesing in some funds wh speifi haaeisis. Reenly, Bailey, Kuma, and Ng (211) find some behavioal biases of muual fund invesos, inluding he disposion effe, by examining a lage sample of U.S. disoun bokeage invesos. We povide a logisi egession analysis o fuhe addess he issues assoiaed wh he esuls in Panel C of Table Logisi egession analysis fo fund eun shoks To bee undesand diffeen esponses of ash flows o fund eun shoks, we ondu logisi egession analysis wh he following six fund haaeisis fo aively managed funds: size (TNA), age, eun volaily, ne flow volaily, aveage gowh ae (of TNAs), and aveage eun. This analysis is based on oss-seional daa and hus ignoes ime-vaying haaeisis of individual funds. Theefoe a aeful inepeaion of he esuls is equied. The dependen vaiable akes a value of 1 if he oeffiien of 43 is posive, and ohewise. Table 6 shows he aveage haaeisi values aoding o he sign of signifian oeffiien (o effe), and he esimaion esuls of logisi egessions. Fo eah ash flow, Panel A pesens he aveage haaeisi values. Fo ne flows, we obseve saisially signifian diffeenes in eun volaily, aveage gowh ae, and aveage eun. The esuls fo inflows also indiae signifian diffeenes in eun volaily and aveage eun, bu no fo aveage gowh ae. Fo ouflows, howeve, hee ae no signifian diffeenes in haaeisis exep fo he aveage 23

24 gowh ae, whih shows maginal signifiane. <Inse Table 6 hee> Panel B shows he esimaion esuls of logisi egessions. Reun volaily and aveage eun have saisially signifian posive effes on ne flows, implying ha ne flows of funds wh high (low) eun volaily and high (low) aveage eun espond posively (negaively) o hei own fund eun shoks. The esuls of inflows ae simila o hose of ne flows, bu a diffeene is ha fund size has signifianly posive effe on inflows. Tha is, inflows of lage (small) funds ae posively (negaively) sensive o eun shoks. We also onfim ha esponses of ne flows ae a naual onsequene of inflows. Howeve, he sensivy of ouflows is no elaed o eun volaily, aveage eun, and fund size. Insead, he aveage gowh ae of TNAs has a posive effe on he sign of he oeffiien, whih implies ha fund eun shoks have a posive effe on ouflows fo high gowh funds. We an efe o his effe as disposion effe and infe ha he disposion effe is moe likely fo high gowh funds. 5.4 Analysis of syle and haaeisi pofolios Reenly, Ben-Rephael, Kandel, and Wohl (212) and Edeingon and Golubeva (211) examine he aggegae ICI (Invesmen Company Insue) daa of monhly fund flows. Moivaed by hese sudies, we fuhe invesigae he sensivy (o oeffiien) of ash flows o fund eun shoks, 43, and analyze aggegae flows based on fund syles and haaeisis. Fo fund syle analysis, we fom syle pofolios by equally- and TNA-weighed aveages. Syle pofolios do no equie ebalaning evey yea beause all funds eain hei syles duing he sample peiod. Fo fund haaeisi analysis, howeve, all aively managed funds ae divided 24

25 ino quinile goups based on eah haaeisi a he end of he pevious yea. All funds in eah goup ae used o fom equally- and TNA-weighed pofolios. Chaaeisi pofolios ae ebalaned evey yea. 11 Fo eah haaeisi, five pofolios ae fomed. Among he five pofolios, we use he fis and las pofolios only. In he ase of eun volaily, fo example, he fis (las) pofolio onsiss of he funds ha belong o he highes (lowes) quinile goup. Panel A of Table 7 pesens he onempoaneous effes of fund eun shoks on ne flows, inflows, and ouflows aoss syle pofolios. Equally- and TNA-weighed pofolios may podue diffeen esuls beause he fome have he popey of small funds in eah syle pofolio, wheeas he lae have ha of lage funds. Hee, we inepe he esimaion esuls only in he ase of no saisial diffeenes in esuls beween equally- and TNA-weighed pofolios. In eah syle pofolio, equally- and TNA-weighed pofolios show que diffeen effes of eun shoks on ne flows and inflows. Fund eun shoks ae moe likely o have negaive (posive) effes on ne flows and inflows fo equally weighed (TNA-weighed) pofolios. This indiaes ha ne flows and inflows of small (lage) funds end o espond negaively (posively) o eun shoks. Consisenly negaive esponses o eun shoks ae shown fo ne flows of gowh funds pofolios. An analysis of inflows and ouflows is equied o explain hese esuls. Boh equally- and TNA-weighed pofolios of gowh and inome funds show negaive effes of fund eun shoks on inflows. This is expeed beause gowh and inome funds pofolio has he haaeisis of bond funds, whih ae less likely o bing ash flows duing an unexpeed bull make. Ouflows onsisenly espond posively o eun shoks fo boh 11 Reun volaily, ne flow volaily, pas gowh ae of TNAs, and pas eun ae alulaed ove he pas 12 monhs. 25

26 equally- and TNA-weighed pofolios of gowh funds and mid- and small-ap funds. We believe ha hese oeffiiens efle he disposion effe. This suggess ha gowh funds and mid- and small-ap funds ae moe pone o disposion effes. The saisially signifian negaive effe of fund eun shoks on ouflows explains why ne flows espond negaively o fund eun shoks fo gowh funds pofolios. <Inse Table 7 hee> Panel B shows he esuls fo haaeisi pofolios of aively managed funds. Fo eah haaeisi, he panel shows he oeffiiens fo he fis and las goups, and pesens hei diffeenes in he las ows. Hee, we es he saisial diffeene in oeffiien by boosapping. 12 If he fis and las pofolios fo eah haaeisi show saisially signifian oeffiiens wh oppose signs, and hee is a signifian diffeene beween he wo oeffiiens, he haaeisis an help explain he effes of fund eun shoks on eah ash flow. We inepe he esuls only in he ase of no saisial diffeene beween equally- and TNA-weighed pofolios. The esuls indiae ha he effes of fund eun shoks on ne flows vay aoss fund size. Ne flows of lage (small) funds espond posively (negaively) o fund eun shoks. This esul is onsisen wh he findings of een sudies elaed o ageny poblems of muual funds: Chevalie and Ellison (1997) and Sii and Tufano (1998) find a posive elaion beween lagged fund euns and ne flows. Needless o say, ne flows indue managemen fees. To inease managemen fees, muual fund family may pomoe speifi funds. The family may 12 Random quinile pofolios ae fomed fom aively managed funds by equally- and TNA-weighed aveages whou eplaemen a he end of he pevious yea. These quinile pofolios ae ebalaned evey yea. Fo he sample peiod, wo pofolios ae seleed andomly. Suual VAR models ae esimaed fo he wo abay pofolios. Finally, we ompue he diffeene beween hei wo oeffiiens of fund eun shoks on ash flows. This poedue is epeaed 1, imes o podue boosapped disibuions fo he diffeene. 26

27 spend a lage sum of money o adveise seleed funds and even subsidize hem by ansfeing pefomane aoss membe funds. 13 Geneally, lage funds ae seleed o maximize pofs, and his behavio an lealy inease family pofs. As a onsequene, ne flows of lage funds should espond posively o onempoaneous fund eun shoks, and vie vesa fo small funds. If his easoning holds, esponses of ne flows should oiginae fom hose of inflows. As shown in he ase of inflows, inflows of lage (small) funds espond posively (negaively) o fund eun shoks. The ohe haaeisis ae no onsisenly elaed o esponses of ne flows and inflows o fund eun shoks. Ouflows show behavio somewha diffeen fom hose of ne flows and inflows. Ouflows of young (old) funds and hose showing high (low) gowh and high (low) euns in he pas espond posively (negaively) o fund eun shoks. Posive esponses o fund eun shoks epesen evidene of a disposion effe, whih implies ha he disposion effe may be moe likely fo young funds and hose showing high gowh and high euns in he pas. 6. Conlusions Many sudies have invesigaed he elaion beween fund pefomane and ne flows in he onex of he ageny poblems. Reenly, seveal sudies analyze inflows and ouflows of individual funds as well as aggegae inflows and ouflows o fuhe examine his elaion. This sudy exends pevious eseah by analyzing ash flows (ne flows, inflows, and ouflows) in a suual dynami famewok. We employ fou vaiables (make volaily, make eun, fund eun, and ash flows) and fous on he onempoaneous effes of unexpeed shoks on ash flows as well as he dynami lagged effes. To obain fuhe insighs, we deompose ne ash 13 See Gaspa, Massa, and Maos (26) fo example. 27

28 flows ino inflows and ouflows and podue new evidene. We an summaize ou majo findings as follows. Fis, make volaily (make eun) shoks have onempoaneous posive effes on ash ouflows (inflows). As a onsequene, make volaily (make eun) shoks have onempoaneous negaive effes on ne flows. We also find ha make eun (make volaily) shoks have lle effe on ouflows (inflows). The posive effe of volaily shoks on ouflows an be explained by volaily iming by muual fund invesos. Seond, fund eun shoks have saisially signifian effes on ne flows fo moe han 64% of sample funds in eah fund syle goup, bu hese effes ae somewha mixed in ems of hei sign o dieion (i.e., posive o negaive). Thid, logisi egessions povide a paial explanaion fo mixed effes of fund eun shoks on ash flows. Tha is, hese mixed effes may be due o diffeen fund haaeisis. The pofolio analysis eveals simila esuls. Finally, we find some evidene of he disposion effe fo boh gowh funds and mid- and small-ap funds. Addionally, fund haaeisis have impoan impliaions fo he disposion effe. 28

29 Refeenes Almazan, Andes, K. C. Bown, M. Calson, and D. A. Chapman, 24. Why onsain you muual fund manage? Jounal of Finanial Eonomis 73, Bailey, W., A. Kuma, and D. Ng, 211. Behavioal biases of muual fund invesos. Jounal of Finanial Eonomis 12, Ben-Rephael, A., S. Kandel, and A. Wohl, 211. The pie pessue of aggegae muual fund flows. Jounal of Finanial and Quanaive Analysis 14, Ben-Rephael, A., S. Kandel, and A. Wohl, 212, Measuing inveso senimen wh muual fund flows. Jounal of Finanial Eonomis 14, Blanhad, O. and D. Quah, The dynami effes of aggegae demand and supply disubane. Ameian Eonomi Review 79, Bis, Auo, Huseyin Gulen, Padma Kadiyala, and P. Raghavenda Rau, 27. Good sewads, heap alkes, o family men? The impa of muual fund losues on fund manages, flows, fees, and pefomane. Review of Finanial Sudies 2, Busse, Jeffey A., Volaily iming in muual funds: Evidene fom daily euns. Review of Finanial Sudies 12, Cashman, G. D. and Daniel N. Deli, 29. Loaing deision ighs: Evidene fom he muual fund indusy. Jounal of Finanial Makes 12, Cashman, G. D., F. Nadai, D. N. Deli, and S. V. Villupuam, 212a. Inveso behavio in he muual fund indusy: Evidene fom goss flows. Jounal of Eonomis and Finane, Apil, online. Cashman, G. D., F. Nadai, D. N. Deli, and S. V. Villupuam, 212b. Invesos do espond o poo muual fund pefomane: Evidene fom inflows and ouflows. Finanial Review 47, Cao, C., E. C. Chang, and Y. Wang, 28. An empiial analysis of he dynami elaionship beween muual fund flow and make eun volaily. Jounal of Banking and Finane 32, Chevalie, J. and G. Ellison, Risk aking by muual funds as a esponse o inenives. Jounal of Polial Eonomy 15, Coval, J. and E. Saffod, 27, Asse fie sales (and puhase) in equy makes. Jounal of Finanial Eonomis 86, Dass, N., M. Massa, and R. Pagii, 28. Muual funds and bubbles: The supising ole of onaual inenives. Review of Finanial Sudies 21,

30 Deli, D. N., 22. Muual fund advisoy onas: An empiial invesigaion. Jounal of Finane 57, Deli, D. N. and R. Vama, 22. Conaing in he invesmen managemen indusy: Evidene fom muual funds. Jounal of Finanial Eonomis 63, Edelen, R. M., Inveso flows and he assessed pefomane of open-end muual funds. Jounal of Finanial Eonomis 53, Edelen, R. M., R. B. Evans, and G. B. Kadle, 211. Dislosue and ageny onfli: Evidene fom muual fund ommission bundling. Jounal of Finanial Eonomis 13, Edelen, R. M. and J. B. Wane, 21. Aggegae pie effes of insuional ading: A sudy of muual fund flow and make euns. Jounal of Finanial Eonomis 59, Edeingon, L. H and E. V. Golubeva, 211. The impa of sok make volaily expeaions on inveso behavio: Evidene fom aggegae muual fund flows. Woking pape. Feeia, M. A., A. Keswani, A. F. Miguel, and S. B. Ramos, 212, The flow-pefomane elaionship aound he wold. Jounal of Banking and Finane 36, Fenh, K. R., G. W. Shwe, and R. F. Sambaugh, Expeed sok euns and volaily. Jounal of Finanial Eonomis 19, Gaspa, J., M. Massa, and P. Maos, 26. Favoism in muual fund families? Evidene on saegi oss-fund subsidizaion. Jounal of Finane 61, Ivkovi, Z. and S. Weisbenne, 29. Individual inveso muual fund flows. Jounal of Finanial Eonomis 92, Johnson, W. T., 21. Who inenivizes he muual fund manages, new o old shaeholdes? Jounal of Finanial Inemediaion 19, Joikashia, C, C. Lundblad, and T. Ramadoai, 212, Asse fie sales and puhases and he inenaional ansmission of funding shoks. Jounal of Finane 67, Lynh, A. W. and D. K. Muso, 23. How invesos inepe pas fund euns. Jounal of Finane 58, Massa, M., and R. Pagii, 29. Inenives and muual fund pefomane: Highe pefomane o jus highe isk aking? Review of Finanial Sudies 22, Meon R. C., 198. On esimaing he expeed eun on he make: An exploaoy invesigaion. Jounal of Finanial Eonomis 8, Nanda, V. K., Z. J. Wang, and L. Zheng, 29. The ABCs of muual funds: On he inoduion of muliple shae lasses. Jounal of Finanial Inemediaion 18, Rakowski, D., 21. Fund flow volaily and pefomane. Jounal of Finanial and Quanaive Analysis 45,

31 Rakowski, D. and X. Wang, 29. The dynamis of sho-em muual fund flows and euns: A ime-seies and oss-seional invesigaion. Jounal of Banking and Finane 33, Sii, E. R. and P. Tufano, Cosly seah and muual fund flows. Jounal of Finane 53, Spiegel, M., Zhang, H., 213. Muual fund isk and make shae-adjused fund flows. Jounal of Finane 53, Wane, J. B., and J. S. Wu, 211. Why do muual fund advisoy onas hange? Pefomane, gowh, and spillove effes. Jounal of Finane 66, Wahe, V. A., Aggegae muual fund flows and seuy euns. Jounal of Finanial Eonomis

32 Table1. Desipive saisis fo sample funds This able shows he desipive saisis fo sample funds, and he oelaion oeffiiens beween make volaily, make eun, fund eun ( ), ne flow ( ne_f ), inflow ( in_f ), and ouflow ( ou_f ). Aveages aoss funds Aveage oelaions aoss funds Panel A: Gowh funds [#331] a Mean Median Sd. dev. ne_f in_f ***b.8851 *** ne_f in_f *** ou_f ** ***.2416 *** Panel B: Gowh and inome funds [#258] ***.8948 *** ne_f in_f *** ou_f ** ***.2219 *** Panel C: Mid- and small-ap funds [#273] ***.7893 *** ne_f * in_f *** ou_f * ***.2781 *** Panel D: Index funds [#67] ***.9386 *** ne_f in_f *** ou_f **.3215 *** a. The numbe of funds in eah goup. b. *, **, ***: saisially signifian a 1%, 5% and 1%, espeively. 32

33 Table 2. Conempoaneous effes of andom shoks on eah vaiable Panel A shows he aveage of onempoaneous oeffiiens of andom shoks fo fou vaiables esimaed fom suual VAR models. Beause of spae limaion, only ne flows ae epoed hee. Panel B shows he peenages of posive and negaive oeffiiens. Panel A: Aveage onempoaneous oeffiiens of andom shoks σ ε ε ne ε σ ε ε Gowh funds[#331] a Gowh and inome funds[#258] Make volaily Make eun Fund eun BQ BQ Ne flow Mid- and small-ap funds[#273] Index funds[#67] Make volaily Make eun Fund eun BQ BQ Ne flow ne ε Panel B: Peenage of posive and negaive signs ne ne ε ε Gowh funds (%) Gowh and inome funds (%) Make volaily + oef. b 1 1 oef. Make eun + oef. 1 1 oef. 1 1 Fund eun + oef oef. 1 1 Ne flow + oef oef Mid- and small-ap funds (%) Index funds (%) Make volaily + oef. 1 1 oef. Make eun + oef. 1 1 oef. 1 1 Fund eun + oef oef. 1 1 Ne flow + oef oef a. The numbe of funds in eah goup. b. Posive oeffiiens.. Negaive oeffiiens. 33

34 Table 3. The elaive impoane of andom shoks: Vaiane deomposion in he ase of ne flows (Un: %) This able shows aveage peenages explained by andom shoks fo eah vaiable. All he peenages onvege whin 12 seps (o monhs). Gowh funds [#331] a Gowh and inome funds [#258] Mid- and small-ap funds [#273] Index funds [#67] ne ε ne ε ne ε ne ε Panel A: Make volaily Panel B: Make eun Panel C: Fund eun Panel D: Ne flow a. The numbe of funds in eah goup. 34

35 Table 4. Hypohesis ess fo ne flows This able shows he esuls of hypohesis ess. Aveage oeffiiens ae shown only fo onempoaneous effes of andom shoks on ne flows. We es onempoaneous effes of andom shoks, lagged effes of eah vaiable, and oveall effes. The onempoaneous effes ae esed by H : = fo j=1,2,3, and he lagged effes ae esed by H :, j=1,2,3, k=1,,k. We es he oveall effe by he sum of k 4 j wo independen hi-squae saisis fo onempoaneous and lagged effes. Gowh and Mid- and Gowh funds inome funds small-ap funds Null hypohesis Aveage oef. a Panel A: Effes of make volaily shoks Pe. Aveage (%) b oef. Pe. (%) Aveage oef. 4 j Pe. (%) Index funds Aveage oef. C 41 (L) K Panel B: Effe of make eun shoks C 42 (L) K Panel C: Effes of fund eun shoks C 43 (L) K a. Aveage of saisially signifian oeffiiens fo eah goup. b. Peenages of ejeed null hypoheses. Pe. (%) 35

36 Table 5. Hypohesis ess fo ash inflows and ouflows by ove-idenifiaion This able shows onempoaneous effes of andom shoks on inflows and ouflows esed by oveidenifiaion. We divide saisially signifian oeffiiens ino posive and negaive ases. Gowh and Mid- and Gowh funds Index funds inome funds small-ap funds Null hypohesis Aveage oef. a Panel A: Effes of make volaily shoks Pe. Aveage (%) b oef. Pe. (%) Aveage oef. Pe. (%) Aveage oef. Inflows: < Ouflows: 41 = > < Panel B: Effe of make eun shoks Inflows: 42 = > < Ouflows: 42 = > < Panel C: Effes of fund eun shoks Inflows: 43 = > < Ouflows: 43 = > < a. The aveage of saisially signifian oeffiiens fo eah goup. b. The peenages of ejeed null hypoheses. Pe. (%) 36

37 Table 6. Logisi egession analysis fo aively managed funds Panel A pesens he aveage haaeisi values aoding o he sign of saisially signifian oeffiiens. Panel B shows he esimaion esuls of logisi egessions. Panel A: Chaaeisi values aoding o he sign of oeffiien wh saisial signifiane Ne flows [#567] a Inflows [#549] Ouflows [#528] + effe b - effe -sa. + effe - effe -sa. + effe - effe -sa. [#348] [#219] of diff. d [#359] [#19] of diff. [#33] [#225] of diff. Size ($ million) 2,34 2, ,324 1, ,338 1, Age (monh) Reun volaily ***e *** Ne flow volaily Aveage gowh ae *** * Aveage eun *** *** Panel B: Logisi egession analysis f Ne flows [#567] Inflows [#549] Ouflows [#528] Coeffiien p-value Coeffiien p-value Coeffiien p-value Log size ** Log age Reun volaily 15.5 * ** Ne flow volaily Aveage gowh ae *.5 Aveage eun 113. *** *** a. The numbe of funds wh saisially signifian oeffiiens. b. Saisially signifian posive effes of fund flow shoks on ash flows.. Saisially signifian negaive effes of fund flow shoks on ash flows. d. -saisis fo he diffeene beween posive and negaive effes. e. *, **, ***: saisially signifian a 1%, 5% and 1%, espeively. f. Consan ems ae no epoed hee. 36

38 Table 7. The effes of fund eun shoks on ash flows in syle and haaeisi pofolios This able foms pofolios using equal weighs and TNA weighs. Panel A pesens he oeffiiens of syle pofolios. When he esuls ae onsisen in sign and signifiane beween equally-weighed and TNA-weighed pofolios, hey ae shaded. Panel B shows he oeffiiens of haaeisi pofolios fo aively managed funds. Fo eah haaeisi, he oeffiiens fo he fis and las goups ae shown, and hei diffeenes ae denoed in he las ows. Saisial signifiane of oeffiien diffeene is esed by boosapping. If he fis and las pofolios in eah haaeisi show saisially signifian oeffiiens wh oppose signs, and he diffeene of oeffiiens is saisially signifian, we an say ha he haaeisi is helpful fo explaining he effes of fund eun shoks on eah ash flow. In his ase, he esuls ae shaded. Equally weighed pofolio TNA-weighed pofolio Ne flows Inflows Ouflows Ne flows Inflows Ouflows Panel A: Resuls of eah syle pofolio Gowh funds -.35 ***a *** -.6 ***..6 ** Gowh and inome funds *** -.17 ***.9 *** -.5 ** -.6 ** Mid- and small-ap funds -.31 ***.8.36 ***.11 **.3 ***.15 *** Index fund funds -.12 *** *** *** Panel B: Resuls of haaeisi pofolios when exluding index funds b Size Lage.18 ***.12 *** -.11 ***.7 ***.4 * -.7 *** Small -.34 *** -.4 *** *** -.59 ***.2 *** Lage-Small.52 ***.52 ** ***.63 *** -.27 ** Age Young -.48 *** -.36 **.46 ***.29 ***.48 ***.19 *** Old.15 *** -.21 *** -.8 *** -.4 *** -.1 *** -.7 *** Young-Old -.63 *** **.33 **.58 ***.26 ** Pas eun High.25 ***.45 ***.52 ***.8 **.3.27 *** volaily Low -.2 * -.41 ***.7 **.15 ***.2 ***.15 *** High-Low.45 **.86 ***.45 * **.12 Pas ne flow High -.31 *** -.4 ***.62 *** -.24 *** -.35 ***.51 *** volaily Low -.29 *** -.37 ***.26 *** High-Low * -.38 ***.51 *** Pas gowh High *** *** ae of TNAs Low.56 ***.2 * -.28 *** * -.24 *** High-Low -.7 *** *** **.53 *** Pas eun High.7.22 ***.35 ***.3.1 **.15 *** Low.52 *** ***.13 *** *** High-Low -.45 ** *** *** a. *, **, ***: saisially signifian a 1%, 5% and 1%, espeively. b. All aively managed funds ae divided ino quinile goups aoding o eah haaeisi. We use he fis and las goups only. 36

39 Figue 1. Impulse-esponse funion analysis Gowh funds Gowh and inome funds Mid- and small ap funds Index funds Panel A. Responses of ne flows Panel B. Responses of inflows Panel C.Responses of ouflows 36