Aggregate Mutual Fund Flows and Subsequent Market Returns
Tel Aviv University - The Leon Recanati Graduate School of Business Administration
Shmuel Kandel (deceased)
Tel Aviv University - Faculty of Management
AFA 2008 New Orleans Meetings Paper
This paper re-examines the relation between aggregate US equity mutual fund flows and the equity market returns in subsequent periods. Investigating aggregate monthly data in the years 1984-2003, we find a positive contemporaneous relation between flows and returns. This price change is partially reversed in the following nine months. The negative relation between flows and subsequent returns is consistent with risk premium changes that are negatively related to price changes and it causes mutual fund investors, as a group, to realize a long-term accumulated return that is lower than the long-term accumulated return on a buy-and-hold position in these funds.
Keywords: mutual funds, flows, market returns, price pressure
JEL Classification: G11, G12, G14, G23working papers series
Date posted: September 27, 2008
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