Based on experience the client assumed that its individual mutual fund investors behave pro-cyclically, i.e. they invest or change their investment strategy "upwards" (i.e. higher equity exposure hence more aggressive behavior) when market prices rise and divest or "lower" their investment strategy (i.e. lower equity exposure thus more conservative behavior) when market prices decrease. Since the assumption has not been proven based on relevant evidence yet, the aim of the analysis was to investigate this assumption.

Several multiple regression analyses were run using data on investor transactions provided by the client. For the regression models, the monthly number of investment strategy changes was defined as the dependent variable, whereas the market performance/development using different time lags, was used as the main independent variable of interest.

The multiple regression analyses that were conducted generated sufficient evidence to confirm a positive relationship between the number of investment strategy changes undertaken by the investors and the market development/performance. Thus, a certain degree of pro-cyclical investor behavior could be proven. These findings confirmed the assumptions of the client about the investor behavior of its individual mutual fund customers. The results could thus serve the client as interesting insights to be communicated to its individual mutual fund investors on different channels.