Aggregate net flows, inflows, and outflows of equity funds: The U.S. versus Japan

•We study the cash inflows and outflows of equity funds in an international context.•Net flow analysis cannot uncover the behavior of fund investors completely.•Risk-taking response of inflows (outflows) to volatility shock for the U.S. (Japan).•Disposition effect is observed for Japan, not for the U.S.•Different results between the U.S. and Japan are explained by behavioral finance.

This paper investigates the aggregate cash inflows and outflows of domestic equity mutual funds as well as their net flows for the U.S. and Japan in an international context. The U.S. and Japan are two representative countries that have the largest and most developed fund markets in the Western world and Asia, respectively. For the purpose of analyzing dynamic relationships between market volatility, market return, and cash flow, this paper employs reduced-form and structural vector auto-regression (VAR) models. The analysis shows much different empirical findings between the U.S. and Japan, which can be explained by different culture and investment sentiments.