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FIRN Virtual Seminar Series - Zhongyan Zhu, Monash

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Working with the large FIRN member institutions we have developed a virtual seminar series where all FIRN members can participate. The seminars will be via zoom and will be about an hour long, comprising presentation followed by moderated Q&A.

In collaboration with Monash University, FIRN invites you to a virtual seminar presented by Zhongyan Zhu, Monash

Title: Constrained Households, Risk Tolerance, and Fund Flows

Authors: Woon Sau Leung and Zhongyan Zhu

Abstract: Constraints are normal for typical households. We introduce a constrained household that engages a mutual fund with limited wealth to meet the household’s debt payment dues. A constrained household withdraws from an engaged mutual fund because fund returns are not enough to meet debt payment dues. An unconstrained household could keep the engagement, however, even if fund returns are low. The difference is because the unconstrained household can earmark additional wealth as a cash reserve. To test the different decisions between constrained and unconstrained households, we locate fixed income mutual funds in two risk categories. Households with a high (low) debt-to-wealth ratio have a low-risk (high-risk) tolerance. The risk tolerance of households manifests on the left half of the return distribution. When mutual funds deliver low returns, investors with low-risk tolerance withdraw, but investors with high risk tolerance could keep their engagements. Fund flows to the risky fund category are significantly larger than those to the safe fund category right after mutual funds deliver low returns. Our study reveals the financial decisions of typical households in Campbell (2006).

Moderated by: Thanh Huynh, Monash

All FIRN members are welcome to this event. Please register your interest and you will be sent an email the day before with the Zoom code.

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