The effect of performance manipulation on fund flows under different market conditions in South Africa

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Corrections to the article made on October 17, 2022
The previous list of authors Richard Apau, Leward Jeke was changed to Richard Apau, Leward Jeke, Peter Moores-Pitt, Paul-Francois Muzindutsi, October 17, 2022. Explanation in the documents: Authors contributions, Authors explanations.

This study analyzes the effect of performance manipulation on mutual fund flows under different market conditions to provide explanations to the increased flow of investors’ funds to persistently underperforming active mutual fund managers in South Africa. The study employs a system GMM technique to analyze panel data of 52 South African actively managed equity mutual funds for the 2006–2019 period. From the analysis, it is found that past fund flows and fund size constitute a set of fund-level factors with predictive influences on fund flows, while market risk exerts systemic effect on the flow of investors’ assets to fund managers. The results show that market conditions do not impact the relationship between mutual fund flows and performance manipulation, which implies that manipulation strategies implemented by fund managers do not engender increased funds’ flow from asset owners. This study thus concludes that other non-performance factors drive convexity in the relationship between fund flows and performance in South Africa.

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    • Table 1. Descriptive statistics
    • Table 2. Correlation matrix
    • Table 3. Effect of performance manipulation on fund flows under different market conditions
    • Conceptualization
      Richard Apau, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Data curation
      Richard Apau
    • Formal Analysis
      Richard Apau, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Investigation
      Richard Apau, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Methodology
      Richard Apau, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Validation
      Richard Apau, Leward Jeke, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Writing – original draft
      Richard Apau, Leward Jeke, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Writing – review & editing
      Richard Apau, Leward Jeke, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Resources
      Leward Jeke, Paul-Francois Muzindutsi
    • Supervision
      Leward Jeke, Peter Moores-Pitt, Paul-Francois Muzindutsi
    • Software
      Peter Moores-Pitt, Paul-Francois Muzindutsi