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Korean Journal of Financial Studies 2014;43(5):911-936.
Published online December 31, 2014.
Convexity in Fund Flow-Performance Relationship: Net Flows and Market Share Changes
Yeon Jeong Ha, Tong Suk Kim, Kwang Soo Ko
주식형 펀드의 성과와 현금흐름의 볼록성 관계
하연정, 김동석, 고광수
The convex relationship between fund performance and net flows has been investigated by many studies including Chevalier and Ellison (1997), Sirri and Tufano (1998). Recently, Spiegel and Zhang (2013) show that the flow-performance relationship is linear when using their new market-share measure. The purpose of this study is to examine the relationship between fund performance and cash flows of Korean equity funds using both measures of net flow and market share change in the Korean context. The main results are as follows: First, unlike the U.S., aggregate net flows of equity funds increase steeply when the performance of large-sized funds increases. Second, the effects of fund size and age exist in flow-performance relationship. That is, the relationship between performance and flow is strong in the large-sized funds and young-aged funds. Third, regardless of cash flow measures, this study finds evidence of convexity in the performance-flow relationship. Fourth, using switching regression models, we re-examine the relationship between performance and flows of fund groups divided by fund size and age. We find that each group shows its own relationship. Surprisingly, only the large-sized fund portfolio shows convex relationship between performance and market share change, but not the small-sized fund portfolio. Although both young- and old-aged fund portfolios show convex flow (and market share change)-performance relationship, the stronger is the young-aged fund portfolio. This could be addressed by a unique feature of the Korean fund market. Due to the promotion of sales forces and investors’ preference, large-sized and young-aged funds play the lead in the Korea fund markets. This feature makes the flow (and market share change)- performance relationship even stronger in the large-sized and young-aged equity funds. Our study contributes to extant literature in that we interpret the convex flow-performance relationship in the unique Korean context.
Key Words: 성과-현금흐름의 볼록성 관계,순현금흐름,시장 점유율 변화,펀드 규모,펀드 연령,Convexity in Fund Flow-Performance Relationship,Fund Age,Fund Size,Market Share Changes,Net Flows

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