Do Fund Investors Consider Asset Returns? Substitute Relation Among Investment Funds in Korea

This study aims to investigate whether fund investors change their investment fund type depending on the return change of assets such as stocks, bonds, and housing. For this purpose, we examine the substitution relation among the equity, bond, and real estate investment funds by employing the net inflow. In particular, investment funds are classified according to investment objective, investment region, and investor. The main findings are as follows: first, the stock return of change is not attributed to the substitution relation among equity, bond, and real estate investment funds, which remains consistent across investment region and investors. Second, the yield change of three-year treasury bonds is attributed to the substitution relation between equity and bond investment funds. That is, if the bond yield increases and the bond prices decrease in turn, then money will go to the 'domestic' equity funds and goes out of the 'domestic and international' bond funds. The substitution relation is revealed between 'publicly placed' equity and 'publicly and privately placed' bond investment funds. Third, housing return of change is attributed to the substitution relation between domestic and international real estate investment funds. This implies that if housing prices rise, then money will go into the 'domestic' real estate investment funds and go out of 'international' real estate investment funds. The substitution relations among investment funds suggest that fund investors consider the return change of assets when determining investment funds.