Seasonal Asset Allocation: Evidence from Mutual Fund Flows
Mark J. Kamstra
York University - Schulich School of Business
Lisa A. Kramer
University of Toronto - Rotman School of Management
Maurice D. Levi
University of British Columbia - Sauder School of Business
University of Maryland - Robert H. Smith School of Business
25th Australasian Finance and Banking Conference 2012
We explore U.S. mutual fund flows, finding strong evidence of seasonal reallocation across funds based on fund risk exposure. We show that substantial money moves from U.S. equity to U.S. money market and government bond mutual funds in autumn, then back to equity funds in spring, controlling for the influence of past performance, advertising, liquidity needs, capital gains overhang, and year-end influences on fund flows. We find strong correlation between U.S. mutual fund net flows (and within-fund-family exchanges) and a proxy for variation in investor risk aversion across the seasons. We find similar evidence in Canadian flows, and inflows from Australia where the seasons are six months out of phase relative to Canada and the U.S. While prior evidence regarding the influence of seasonally changing risk aversion on financial markets relies on seasonal patterns in asset returns, we provide the first direct trade-related evidence.
Number of Pages in PDF File: 114
Keywords: time-varying risk aversion, sentiment, mutual fund flow seasonality, net exchanges, net flows, risk tolerance, risk aversion
JEL Classification: G11working papers series
Date posted: November 17, 2011 ; Last revised: April 29, 2013
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