Mutual fund flow-performance dynamics under different market conditions in South Africa

  • Received December 16, 2020;
    Accepted January 29, 2021;
    Published March 15, 2021
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/imfi.18(1).2021.20
  • Article Info
    Volume 18 2021, Issue #1, pp. 236-249
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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.

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    • Table 1. Descriptive statistics
    • Table 2. Correlation matrix
    • Table 3. GMM results of flow-performance dynamics under different market conditions
    • Table 4. Flow-performance with changing conditions from the fund market
    • Formal Analysis
      Richard Apau
    • Investigation
      Richard Apau
    • Methodology
      Richard Apau, Paul-Francois Muzindutsi, Peter Moores-Pitt
    • Project administration
      Richard Apau, Paul-Francois Muzindutsi, Peter Moores-Pitt
    • Resources
      Richard Apau, Paul-Francois Muzindutsi, Peter Moores-Pitt
    • Software
      Richard Apau
    • Validation
      Richard Apau, Paul-Francois Muzindutsi, Peter Moores-Pitt
    • Visualization
      Richard Apau
    • Writing – original draft
      Richard Apau
    • Writing – review & editing
      Richard Apau, Paul-Francois Muzindutsi, Peter Moores-Pitt
    • Conceptualization
      Richard Apau, Paul-Francois Muzindutsi, Peter Moores-Pitt
    • Data curation
      Richard Apau
    • Supervision
      Paul-Francois Muzindutsi, Peter Moores-Pitt