Historical asset flow and Morningstar Investor Returns data show that investors tend to chase performance. Emerging-markets funds would seem to be particularly susceptible to performance-chasing given their pronounced volatility. For example, in 2008, the MSCI Emerging Markets Index plummeted 53% and then rallied 79% in the following year. 

Looking at the charts below, emerging-markets fund flows appear to rise and fall along with market performance. Chart 1 is a graph of the annual returns of the MSCI USA Index, the MSCI EAFE Index (an index of stocks in developed foreign markets), and the MSCI Emerging Markets Index. Chart 2 graphs the annual net flows into and out of three categories of funds--U.S. equity funds, foreign developed equity funds, and emerging-markets equity funds--as a percentage of total net assets invested in those funds at the start of the year. The funds in Chart 2 include both exchange-traded funds and mutual funds.

Chart 1: Annual Market Performance