Equity funds that invest primarily in equities are exposed to both market risk and cross-sectional systematic risks. However, Barber, Huang, and Odean (2016) and Berk and van Binsbergen (2016) show that investors in the U.S. mutual fund industry mostly consider the market risk (beta) when evaluating funds and treat the returns attributable to other systematic risks as alpha. Thus, the capital asset pricing model (CAPM) alphas are the best predictors of fund flows among the competing performance evaluation models. Indeed, Barber, Huang, and Odean (2016) and Berk and van Binsbergen (2016) show that investors take into account the realizations of aggregate risk factors when assessing the performance of mutual funds. Similarly, Berk and Green (2004) use a rational model to demonstrate that investors learn about a manager's ability from past returns. Based on the work of Berk and Green (2004), Barber, Huang, and Odean (2016), and Berk and van Binsbergen (2016), Franzoni and Schmalz (2017) investigate the flow-performance sensitivity of mutual funds across market states and show that the sensitivity changes across market states. They assume that the fund investors are Bayesian investors who are uncertain about the degree to which the fund returns are exposed to systematic risk. In extreme periods, defined as periods of very high or low market excess returns, they find that the flow-performance sensitivity is weaker because fund investors have difficulty estimating the skill of fund managers. In line with Franzoni and Schmalz (2017), Starks and Sun (2016) find that the fund flow-performance sensitivity decreases during periods of economic uncertainty. In this study, we investigate the equity fund flow-performance sensitivity across market states in the Korean fund market. Sirri and Tufano (1998) and Huang, Wei, and Yan (2007) show that search costs or participation costs are an important determinant of fund flows, emphasizing the convex relationship between flow and performance. Because a fund investor cannot evaluate all of the funds in the fund market, the fund flows are concentrated in high-performing funds. However, Ferreira, Keswani, Miguel, and Ramos (2012) show that the participation costs have declined over time as the U.S. mutual fund industry has matured, thereby weakening the convex flow-performance relationship. However, in the emerging fund market of Korea, the flow- performance relationship is strongly convex because the investors are less sophisticated. In fact, during the 2008 global financial crisis, there was a massive redemption of equity funds because the less sophisticated investors were not aware that the fund returns could move in line with the market returns. In contrast to the U.S. mutual fund market, in which investors acknowledge the fund market risk, there may be a lack of awareness of the fund market risk in the Korean fund market. Thus, we also examine the effect of market risk on equity funds in the flow-performance relationship. The aims of this study are as follows. First, drawing on Franzoni and Schmalz (2017), we analyze the flow-performance sensitivity across different stock market conditions. Using Fama and Macbeth's (1973) monthly cross-sectional regression, we divide the entire period into three periods of down-, moderate-, and up-market depending on the market risk premium and divide the periods into negative and positive periods. Second, to examine the effects of an equity fund's market risk, we investigate the fund flow response to the fund's raw returns (i.e., the absolute returns without adjusting the benchmark returns) and market-adjusted returns (i.e., the raw returns minus the market returns). We then use the pooled regression model to estimate how the fund flows respond to the raw returns and the market-adjusted returns divided by the negative and positive returns, respectively. Our results are as follows. First, in contrast to Franzoni and Schmalz (2017), we find that the flow-performance sensitivity in the Korean fund market increases significantly during the up-market periods and the positive periods in which the market risk premium is high. This suggests that Korean equity fund investors expect high absolute positive returns and respond more sensitively to the performance of the funds in such market conditions. Second, we find that the fund risk does not affect the flow-performance relationship, thus indicating that the fund investors do not respond to the fund risk. Third, the flow-performance relationship is significant only when the raw returns are positive for the entire period. Finally, the flow-performance relationship is only observed when the raw returns are positive regardless of the fund size, age, and performance evaluation period. The results of this study suggest that unlike in the developed U.S. mutual fund market, the fund investors in the Korean equity fund market do not regard market risk as a risk and expect high absolute raw fund returns. This suggests that fund investors in Korea need to recognize the inevitably of market risk and invest in funds as a means of long-term investment.