Graduation Semester and Year
Fall 2024
Language
English
Document Type
Dissertation
Degree Name
Doctor of Philosophy in Business Administration
Department
Finance
First Advisor
Dr. John C Adams
Second Advisor
Dr. David A. Rakowski
Third Advisor
Dr. Grace Qing Hao
Fourth Advisor
Dr. Larry Lockwood
Abstract
This dissertation comprises three essays that investigate the impact of real interest rates (real rates) on mutual fund dynamics, specifically focusing on the performance-flow relationship (PFR) and the size-flow relationship (SFR).
Essay 1 explores how real rates influence the PFR in equity mutual funds. The hypothesis posits that higher real rates increase investors' opportunity costs, prompting them to prioritize past performance more heavily, thus intensifying the PFR. Empirical analysis supports this hypothesis, revealing that a 1% increase in real rates correlates with a 1.816% increase in PFR, holding other variables constant. This relationship is mixed across different subgroups of funds where opportunity costs are higher. However, the findings still underscore the importance of considering macroeconomic variables when evaluating fund performance and investor behavior.
Essay 2 examines the interaction between real rates and the SFR. It argues that capacity constraints driving the SFR should inversely correlate with real rates for equity funds. The modified methodology from Essay 1 shows that higher real rates weaken the SFR, highlighting a shift in investor preference toward smaller funds in high-rate environments. Additionally, past performance negatively correlates with equity fund flows when both real rates and fund size are considered.
Essay 3 extends the analysis of the PFR sensitivity to real rates to funds domiciled outside the U.S. The study finds that higher policy rates amplify the PFR for equity funds, even after accounting for economic factors such as GDP growth and foreign exchange rates. The research shows that advanced economies have a stronger sensitivity of PFR to real rates, whereas emerging markets display a weaker PFR in the context of higher policy rates.
Collectively, these essays contribute to a deeper understanding of the effects of real interest rates on mutual fund investors’ behavior, offering valuable implications for investors and policymakers in both domestic and international contexts. The interconnected insights from these essays emphasize the need to consider macroeconomic conditions when assessing mutual fund performance and investor decision-making.
Disciplines
Finance and Financial Management
License
This work is licensed under a Creative Commons Attribution 4.0 International License.
Recommended Citation
Chien, Yi-Ju, "THREE ESSAYS ON MUTUAL FUND FLOWS" (2024). Finance and Real Estate Dissertations. 63.
https://mavmatrix.uta.edu/financerealestate_dissertations/63