¹China Europe International Business School, Shanghai, China

Correspondence: X Zhao, China Europe International Business School (CEIBS), 699 Hongfeng Road, Pudong, Shanghai 201206, China. Tel: +86 21 28905601; Fax: +86 21 28905620; E-mail: zxinge@ceibs.edu

Received 12 July 2006; Revised 1 October 2007; Accepted 29 November 2007; Published online 12 June 2008.

Abstract

Diversification benefits appear to be a major reason why investors choose international equity funds. Funds less correlated with the US market tend to receive higher flows from investors. In addition, investors prefer funds that invest in a diversified portfolio of securities from different regions in the world to funds that focus only on a specific region. Risk-adjusted return is shown to exert greater effect on flows into international equity funds than raw return. International equity funds from fund families offering a greater number of investment objectives also receive higher flows. On the other hand, international equity fund investors do not appear to be sensitive to expenses or exchange rates.