Fund flows depend on behavioural patterns – Deutsche Asset & Wealth Management paper
Emotions such as loss aversion are key determinants of fund flows, according to research that has tracked data across 35 countries and been published by the Deutsche Asset & Wealth Management Global Financial Institute.
Thorsten Hens, Swiss Finance Institute professor of Financial Economics and director of the Swiss Banking Institute at the University of Zurich in Switzerland, conducted the research on behalf of DAM.
He found that only in a few countries, such as Luxembourg and Ireland, to regulations play a role in mutual fund flows. In other countries flows can be traced to behaviour of investors.
Loss aversion is one of the strongest emotional responses, according to the research, which suggests that losses of 10% cause stronger emotions than profits of 10%.
Flows in and out of funds are also stronger in countries where investors tend to be wary of losses; Asia as a region in particular is noted thus, including Hong Kong, Thailand and South Korea.
In European markets such as Germany, Sweden, Netherlands and Switzerland, behaviour is characterised by ‘patience’, with investors tending to wait longer before changing their behaviour.
Across all 35 countries analysed, the research found a clear impact on investor psychology of the financial crisis, with investors buying fewer units in response to price increases in their home markets.
To read the full research click here: [asset_library_tag 6948,Behavioural Finance and Mutual Fund Flows]