The behavior of Taiwan mutual fund investors –

performance and fund flows

Presenter ： Chia-Yi Abi LinInstructor ： Dr. Pi-Ying Teresa HsuDate ： March 16, 2011

2

Citation

Shu, P.-G., Yeh, Y.-H., & Yamada, T. (2002). The behavior of Taiwan mutual fund investors--performance and fund flows. Pacific-Basin Finance Journal, 10, 583-600.

3

ContentⅠ. Introduction

Ⅱ. Literature Review

Ⅲ. Methodology

Ⅳ. Results

Ⅴ. Conclusions

Ⅵ. Reflections

4

Previous studies on mutual fund flows using US data have

portrayed many interesting aspects of investor behavior.

How about

Taiwan?

A stark different in the behavior of investors in Taiwan

Literature Review 1. the past fund

performance

2. various fees

1. the past fund performance

2. various fees

☆

5

Methodology

Open-end equity mutual fundsOpen-end equity mutual funds(Taiwan Economic Journal)(Taiwan Economic Journal)

37 (Fixed sample)

18 large mutual funds17 small mutual funds

1995/11 ~ 1999/10

90 (Variable sample)

70% general category8% small stock12% technology

minimum of 1 year

6

Methodology

Fama and MacBeth (1973)Fama and MacBeth (1973)☆

1. past raw returns2. risk-adjusted returns3. fund rankings (SITCA)

Total net asset divided by the number of investors, captures the structural factor of investors.

Management fee divided by the net assets value.

Intensity of trading activity of fund

managers.

Standard deviation of fund returns as fund’s total risk measure.

7

Results – Table 1The summary statistics of the fixed samples

Small-amount investors prefer large funds, while large-amount investors prefer small funds.

8

Results – Table 2 (Panel A)The yearly returns of the funds

Fund managers tend to increase the systematic risk of his portfolio in response to market returns.

9

Results – Table 2 (Panel B)The persistence of mutual fund returns

More persistence for funds that perform either well or poorly

10

Results – Table 3The estimated result using the entire sample of Taiwan equity funds

The fact that larger funds, which have larger aggregate flows, have smaller account sizes.

11

Results – Table 4 (Panel A)The regression results for inflows and outflows of large funds

Large-fund investors tend to buy funds based on short-term gains and sell the funds to realize the short-term profit.

12

Results – Table 4 (Panel B)The regression results for inflows and outflows of small funds

These investors do not realize short-term profits but hold onto funds with better performance.

13

Results – Table 5The estimated for the year preceding the fund flows

Nonsignificantly different from zero

14

Results – Table 5The flows of large funds and small funds of management fees

Investors of small funds invest more in funds with higher management fees.

15

Results – Table 6The coefficients on the past returns

Positive relation of large funds reflects their positive performance-inflow relation and that of small funds mirror their negative performance-outflow relation.

16

Conclusions

Large-amount investors are more lenient to high management fees.

Small-amount investors tend to buy large funds based on past short-term performance and sell to realize the short-term profit.

Large-amount investors tend to buy small funds and hold on to the winners and redeem the losers.

17

Reflections

The new aspect of the investors’ behavior in Taiwan is explored.

Details of the test statistical analysis are clear.

18

“ Be fearful when others are greedy and greedy when others are fearful.”

(Warren Buffett,1985)