A Seemingly Unrelated Regression Analysis on the Trading Behavior of Mutual Fund Investors

(ProQuest: . denotes formulae omitted.)1. INTRODUCTIONThe behavioral difference between purchase and redemption of fund investors can provide valuable management implications for fund managers. It is beneficial to know investors' attitudes toward trading with poor or good fund performance. Purchase could depend on investors' demand, the option to sell shares at any time, and could also be another way for investors to request redemption of outstanding fund units or shares. Therefore, one can study the open-end fund transactions of investor purchases and redemptions in accordance with the fund net value that is traded under normal conditions. Previous literature explored the relationship between fund performance and its flow, but most of them focused on the net flow (Ippolito, 1992; Carhart, 1997; Goetamann and Peles, 1997; Chevalier and Ellison, 1997; and Sirri and Tufano, 1998) rather than on the purchase and redemption flows. Focuses only on the view of net flow point is likely to lose investor's decision-making process. Furthermore, it cannot understand detailed trading decisions. Therefore, this article looks at the fund flows in three parts-purchase, redemption, and net flows to discuss the fund's investment behavior. We use seemingly unrelated regression (SUR) to observe if the current and deferred fund performance impacts the fund flows. Fund flows may be affected by unknown factors that externally affect research results. Adopting the SUR models to observe current and deferred returns that affect the fund flows can effectively reduce the empirical results bias for residuals of the regression model. This article proceeds as follows. Section 2 provides research purpose, samples, research periods, and the statistical models. Section 3 provides the empirical evidences of the following questions: (1) the relationship between fund flows and returns linked to various types of domestic fund investors; (2) whether trade asymmetry exists in the relationship between fund returns in the domestic fund market and investment behavior; (3) whether policyholders who used various purchase and redemption methods held various views about return signals; and (4) whether the investment behaviors of policyholders in various risk groups influenced return factors at varying degrees. Finally, Section 4 concludes the paper.2. RESEARCH METHODSWe can look at whether fund performance will impact fund flows and whether the current flow can be used to speculate future performance. Many scholars explore the relationship between fund performance and flows. The paper analyzes the trading behavior of mutual fund investors in an onshore fund and provides a future reference for mutual fund investors.2. 1. Research samplesOur sample focuses on Taiwan domestic funds from the Taiwan Economic Journal (TEJ). The research period was from May 1, 2007 to December 31, 2011. The data drawn from the TEJ database included all types of domestic funds in Taiwan, monthly fund flows, the purchase prices of monthly funds, the redemption prices of monthly funds, the net value of funds at the end of each month, and the net asset value of funds. Domestic funds are divided into equity, balanced, and bond funds according to investment objective. Allocation of investment objective is as shown in Table 1. Equity funds are much greater than the others; the share is more than 50%, balance funds are less than 10%, and bond funds are 10%. Descriptive statistics can aggregate meaningful explanations and provide the average and distribution for sample data. This study will analyze the purchase, redemption, net assets, net flow, and fund returns to understand the distribution of those relevant variables. Table 2 indicates the statistical results. The study sample is divided into equity funds, balanced funds, and bond funds, respectively. We can understand the sample distribution by the different investment groups. For the sample distribution, the balance funds' purchase and redemption are more centralized than the equity and the bond funds. …