We analyze cash flows in and out of US based domestic and international mutual funds. Our results suggest that currency market changes are important considerations when investors decide to purchase or redeem mutual fund shares. Specifically, we find that increased foreign currency values are positively related to fund flows. While exchange rates are important considerations for investor cash flows in and out of domestic and international funds, we find that foreign fund flows are more sensitive to exchange rates. Furthermore, the increased flows into international funds over the 1998–2007 sample period are not exclusively due to superior risk adjusted performance relative to domestic funds.
AdamsJohn and HartsfieldReidIV, (2009, forthcoming), “Foreign Currency Exchange Rate Volatility and Mutual Fund Cash Flows”, Journal of Asset Management.
2.
FrootKenneth and RamadoraiTarun (2008), “Institutional Portfolio Flows and International Investments”, Vie Review of Financial Studies, 21 (2).
3.
HauHarald and ReyHelene (2006), “Exchange Rates, Equity Prices and Capital Flows”, The Review of Financial Studies, 19 (1), 273.
4.
MassaMassimo, GoetzmannWilliam N. and RouwenhorstK Geert (2004), “Behavioral Factors in Mutual Fund Flows”, Yale ICF Working Paper ysm8.
5.
NandaVikram, NarayananM.P. and WartherVincent, A. (2000), “Liquidity, Investment Ability, and Mutual Fund Structure”, Journal of Financial Economics, 57 (3), 417–443.
6.
NandaVikram, WangZ. Jay and ZhengLu (2004), “Family Values and the Star Phenomenon”, Review of Financial Studies, 173).
7.
SirriErik R. and TufanoPeter (1998), “Costly Search and Mutual Fund Flows”, The Journal of Finance, 53 (5), 1589–1622.
8.
TufanoPeter and SevickMatthew (1997), “Board Structure and Fee-Setting in the U.S. Mutual Fund Industry”, The Journal of Financial Economics, 46 (3), 321–355.
