A Study of Fund Performance-Flow Relationship and Favoritism Strategy of Taiwan Mutual Funds

• Main Authors: Feng-Huei Chang, 張鳳暉
• Other Authors: Yeong-Jia Goo
• Format: Others
• Language: en_US
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/30344303548439725452

博士 === 國立臺北大學 === 企業管理學系 === 99 === Mutual funds have become an indispensable financial instrument for Taiwanese investors in asset allocation. Previous studies have been focused on the behavior of fund managers, such as herding behavior and window dressing of the fund holdings. Despite that the American mutual fund scandals happening in September 2003 have drawn our attentions on fund governance, there are few literature studies on fund company-level strategies. Therefore, this study intends to investigate whether fund companies in Taiwan actively pursue company-level strategies to maximize their overall profits at the expense of fund investors under the conflict of interest between fund companies and fund investors. The motivation for these company-level strategies is also examined in this research. The purposes of this research are: (1) to examine the fund performance—flow relationship in the Taiwan fund market. (2) to investigate whether fund companies pursue a risk-sharing strategy to support the fund whose performance is lagging behind. (3) to examine whether there exist favoritism strategies in fund companies—that is, fund companies give favoritism to high-contribution-value funds at the expense of the low-contribution-value funds for their companies. (4) to find whether a fund company’s risk-sharing strategy depends on the performances of the investment category for high-value funds or low-value funds. (5) to find whether a fund company’s favoritism strategy depends on the performances of the investment category for high-value funds or low-value funds. This study uses the Taiwan open-end domestic equity funds from Jan. 2001 to June 2010 as the research sample. The whole sample data can be divided into 7 categories: Common Equity Fund, Medium-Small Capital Equity Fund, High-Tech Fund, Value-Stock Fund, Theme Fund, Taiwan Enterprise Fund and OTC Equity Fund. The resulting base sample consists of 172 funds and 38 fund companies, including fund monthly return, monthly fund fee ratios, fund monthly total net assets, fund age, and company age, and the monthly rate of return of TAIEX. The cross-sectional regression and panel regression model are employed to examine the relationship between fund flows and fund performances. And the multivariate regression model is used to examine the fund company-level strategies. The results of this research are summarized as follows: (1) For the empirical results on fund performance—flow relationship, we find (a) the previous fund monthly ranking, no matter compared with the peer funds or the funds with the same company, is positively related to the growth rate of fund flows. There exists a similar U-shaped fund performance—flow relationship. In other words, fund investors chase past winners but also flee from past losers at nearly the same rate, which is a little different from the asymmetric fund performance—flow relationship of the U.S. fund data. (b) The top performers in the previous month have significantly positive effect on the growth rate of fund flows. (c) A crowding out effect is found when there exists at least one top performer within the same fund company. (d) The concurrent market rate of return is negatively related to the fund flows. (2) For the empirical results on fund company-level strategies, we find (a) there exist favoritism strategies in the fund companies—that is, the fund companies give favoritism to high-value funds at the expense of low-value funds. Besides, the favoritism strategies are more prevalent in the High-Tech Funds. (b) After considering the characteristics of fund companies, we find that favoritism strategies are more prevalent in the fund companies that have medium-sized management assets, set up earlier or belong to medium-sized and old companies. (c) The results also show fund companies give favoritism to high-fee funds.