Market Returns and Mutual Fund Flows
20 Pages Posted: 19 Nov 2007
Abstract
With the increased popularity of mutual funds come increased concerns. Namely, could a sharp drop in stock and bond prices set off a cascade of redemptions by mutual fund investors and could the redemptions exert further downward pressure on asset markets? The authors analyze this relationship by using instrumental variables - a measuring technique previously unapplied to market returns and mutual fund flows - to determine the effect of returns on flows. Despite market observers' fears of a downward spiral in asset prices, the authors conclude that the short-term effect of market returns on mutual fund flows typically has been too weak to sustain such a spiral.
Keywords: instrumental variables, returns, flows
JEL Classification: E44, G14, G23
Suggested Citation: Suggested Citation
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