Capital markets in Central and Eastern Europe: two selected cases

The evolution of mutual funds in terms of their inflows and outflows is seen as a good indicator of the capital markets' performance in different countries. At individual level, investors substantiate their buying decisions on the past performance information and invest asymmetrically in funds with very good performance in the previous periods. Numerous studies, mainly conducted in US, illustrate that mutual fund flows are highly dependent on the funds' previous performance, as a common behavior of investors resides in looking for highly performing funds than to get rid of poorly performing ones. This paper investigates the flows of funds into and out of Slovakian and Hungarian mutual funds during the period 2007-2014 and has as main purpose to analyze the behavior of investors in mutual funds in these two emerging financial markets. The analysis focuses on identifying patterns in investors' decision making processes and on checking the similarity of their behavioral patterns and illustrating differences among the two. Given the peculiarities of the studied period, a financially turbulent period, the paper also tries to evaluate if and how the financial crisis affected the investing behavior of Slovakian and Hungarian investors, based on the evolution of inflows and outflows of funds in a period that comprises the global financial crisis and the present period in which recovery has started.