Richard Apau

Corrections to the article made on October 17, 2022
The previous list of authors Richard Apau, Leward Jeke was changed to Richard Apau, Leward Jeke, Peter Moores-Pitt, Paul-Francois Muzindutsi, October 17, 2022. Explanation in the documents: Authors contributions, Authors explanations.

This study analyzes the effect of performance manipulation on mutual fund flows under different market conditions to provide explanations to the increased flow of investors’ funds to persistently underperforming active mutual fund managers in South Africa. The study employs a system GMM technique to analyze panel data of 52 South African actively managed equity mutual funds for the 2006–2019 period. From the analysis, it is found that past fund flows and fund size constitute a set of fund-level factors with predictive influences on fund flows, while market risk exerts systemic effect on the flow of investors’ assets to fund managers. The results show that market conditions do not impact the relationship between mutual fund flows and performance manipulation, which implies that manipulation strategies implemented by fund managers do not engender increased funds’ flow from asset owners. This study thus concludes that other non-performance factors drive convexity in the relationship between fund flows and performance in South Africa.

Analysts continue to demand explanations for the continuous flow of depositors’ and investors’ funds to persistently underperforming banks, while universal banking is premised on the ability to outperform the market. This study examines the effect of bank-level factors on the profitability of banks under changing economic conditions, using a dynamic panel system Generalized Method of Moments (GMM) technique for panel data collected from 18 universal banks in Ghana. The data collection period was from 2007 to 2021. The analysis revealed that lagged return on assets, capital adequacy ratio, and deposit to total asset ratio have a positive influence on bank profitability, whereas lagged return on equity, bank size, expenditure, and asset quality negatively impact profitability. While the effect of these variables on profitability is expected considering the literature, the evidence obtained for asset quality is inconsistent with the explanations in the literature as an increase in asset quality is expected to drive an impressive trend in profitability. Furthermore, a negative relationship was found to exist between economic growth and bank performance when economic expansion exerts a deteriorating effect on the returns on bank assets. This can be linked to the dispersion of investors’ and customers’ funds to other investments, which limits the amount of funds available to the banks to grant credits for interest income. Based on the findings, it can be concluded that bank-specific dynamics adapt to changes in economic conditions which can be explained by the normative guidelines of the Adaptive Market Hypothesis.

Questions regarding the specific factors that drive continuous cash allocations by investors into portfolios of actively managed funds, despite consistent underperformance, continue to remain an inexhaustive aspect of the literature that calls for further investigations. This study assesses the dynamic relationship between fund flow and performance of equity mutual funds in South Africa under different market conditions. The study employs a GMM technique to analyze the panel data of 52 South African equity mutual funds from 2006 to 2019. The analysis found that convexity is prevalent in the flow-performance relationship, where fund contributors in subsequent periods allocate recent underperforming and outperforming funds disproportionate cash. This finding is evident in the lack of significance in the past performance effects on subsequent fund flows. The study found that lagged fund flows, fund size, fund risk, and market risk drive subsequent fund flows under changing conditions of the general market and fund markets. Overall, it is posited that fund contributors and asset administrators adapt to prevailing market dynamics relative to trading decisions. As a result, this affirms the normative guidelines of the Adaptive Markets Hypothesis, leading to the conclusion that exogenous factors drive fluctuations in fund flows in South Africa.