Channel Effects of Korean Fund Distributors and Affiliates: Focusing on Historical Return-Chasing Phenomenon and Financial Regulations

Abstract

This study investigates the channel effects of fund distributors, specifically in terms of past return chasing, while also considering whether these fund distributors are affiliated with asset management firms or not. The empirical findings are summarized as follows. First, affiliated funds exhibit about 24% lower past return chasing compared to their non-affiliated counterparts. This result suggests that the criteria employed for selection and management of affiliate funds are notably less stringent in their reliance on past performance compared to non-affiliated funds. Second, the past return chasing behavior of affiliated funds has increased subsequent to the implementation of regulations governing fund distribution for such funds. In other words, the management of return rates for affiliate funds has become more stringent. Third, affiliate funds sold by fund distributors have higher searching costs or higher sales remuneration, particularly evident among small and low-age funds, compared to non-affiliated funds. This indicates that there is a difference in fund attributes depending on the affiliation status. This paper make a substantive contribution by providing empirical evidence on the impact of financial sales regulations, such as restrictions imposed on sales of affiliated funds.