Retail fund flows and performance: Insights from supervisory data.

This paper explores inflows and outflows patterns in retail equity mutual funds related to past and future performance derived from detailed monthly security-level holdings of funds in the Czech Republic. We find that retail investors become sensitive to bad performance in times of aggregate illiquidity and while investing in funds that hold more illiquid assets. Moreover, we document that when facing illiquidity and deteriorating performance, under-performing equity investing funds experience lower investor purchases and a larger share of redemption requests. We observe similar investor behaviour in periods when retail investors face constraints on their disposable income. • Fund flow–performance is analyzed using detailed supervisory data. • Fund inflows and outflows react more to good performance than to bad performance. • Retail equity fund investors react to bad performance during illiquid periods. • Fund flows respond to changing income constraints of retail investors. [ABSTRACT FROM AUTHOR]