Decisions of domestic equity fund investors: determinants and search costs

Abstract

In the present study, we confirm the asymmetry of the performance-flow relationship documented in the literature, but with the particularities of the sample of Spanish funds. Thus, we conclude that mid-performers show no significant influence on investor decisions. The panel data analysis also allows us to conclude that custodial and management fees and the size of the fund have a negative impact on the flows into funds. Empirical evidence is provided on the differential response of investors to the decision factors depending on the market states.

Acknowledgements

The authors would like to express their thanks to the University of Zaragoza (268–147) and to the Financial Group Ibercaja for the award of Research Projects 268–128. The authors also acknowledge the financial support provided by Spanish government and European Commission (Research Project-SEJ2006–04208/ECON with FEDER grants).

Notes

¹ Source: Investment Company Industry, ICI (2006), Tables 44 and 45.

² A simple investment strategy would be buying funds with superior past performance with the underlying belief that funds show performance persistence. This phenomenon is studied in Grinblatt and Titman (1992) or Brown and Goetzmann (1995), among others. Ferruz and Vicente (2005) analyse a sample of Spanish funds.