Paul-Francois Muzindutsi

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.

Securitization has been used as a tool for bank funding, liquidity, risk management, and performance for over two decades. However, securitization activities were negatively affected by the recent financial crises, which led to stricter regulations of banks’ off-balance-sheet activities. This study examined the possible impacts of the Basel IV capital requirements on securitization activities and the performance of commercial banks in South Africa if implemented. The study used aggregated financial data of selected South African commercial banks to create a sample representative projection as if the selected banks had implemented the Basel IV capital requirements between 2002 and 2018. The simulated data were analyzed and compared to Basel III data using panel data analysis under certain assumptions, while other conditions held constant. The results revealed that the implementation of the Basel IV capital requirements will have a significant positive impact on securitization activities of commercial banks in South Africa. However, higher capital requirements of Basel IV may have no significant impact on performance of securitizing banks but it can protect banks from securitization exposure.

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.