Currency Markets,Performance,and Mutual Fund Cash Flows

Abstract

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.

JEL Classification: G23, F31