Overall, in both academic and practical senses, the study of the fund''s cash flows is very important to fund investors and fund managers. Many studies have been conducted on net cash flows, but very few studies have considered the fund''s inflows and outflows. Using the data of inflows and outflows obtained from Form N-SAR filings with the SEC in the EDGAR system, we investigate the mutual fund''s cash flows.

This study consists of three essays. The first essay examines the relationship between fund performance and cash inflows and outflows. We have applied Bayesian econometrics to measure the fund''s alpha. Bayesian alpha could affect the relationship between fund performance and cash flows, because Bayesian alpha reflects the fund investor''s prior belief. The second essay explores the dynamic relationship between fund performance and cash inflows and outflows. Using a structural vector auto-regression (SVAR) model, this study examines the dynamic relationships among market volatility, market return, fund return, and fund cash flow at the individual fund level. The last discusses the effects of the fund’s risk increase on cash inflows and outflows. This essay focuses on agency problems that arise between fund managers and investors.

The overall results are as follows: First, better-performing funds have larger inflows and smaller outflows. That is to say, investors base their fund investment decisions on performance. Also, Bayesian alpha has an impact on the results. Second, market volatility (market return) is a very important element in explaining the fund outflows (inflows). Fund return shocks have statistically significant effects on cash flows for each fund, but these effects are somewhat mixed in terms of their sign or direction. Third, the failure of the strategy of the fund''s risk increase didn''t reduce the fund''s net flows, or TNA. Therefore, the fund''s risk increase could cause agency problems to arise between fund managers and investors. With the increasing number of behavioral finance analyses, understanding the behavior of fund investors is very important. We believe that this study could serve as a starting point for further research.