The Correlation Between Fund Performance And Investors’ Behavior In Diverse Stages Of The Stock Market

In recent years, the problem of flow-performance relationship(FPR) around China’s open-end fund market is getting more and more attention from domestic scholars. However, few of the relevant researches of FPR in China considered the effect of the stock market cycle which may influence the behavior of investors, and most scholars would calculate the cash flow of fund by merging the purchase and redemption. Thus, the conclusions of previous researches need further discussion. Based on the data of 408 open-end funds in China between the years of 2005 to 2014, this paper studies the relationship between the performance of fund and the behavior of investors in domestic open-end fund market by introducing the stock market cycle dummy and using panel-data model, which may further enrich the domestic research on FPR. The result shows: 1. Both the purchase and redemption of a fund is positively related to the performance of the fund; 2. The net inflow of a fund has positive correlation with the performance of the fund, which stands for that the "Redemption Puzzle" does not exist in general; 3. Investors have diverse behavior tendency during different stages of the stock market cycle. In the bull market, investors tend to be ―Return Chasing‖, while in the bear market, they tend to be ―Return Ignoring‖. In the end of this paper, some advices are given to improve the healthy development of domestic fund market according to the conclusions.