The Price Pressure of Aggregate Mutual Fund Flows

38 Pages Posted: 5 Nov 2008 Last revised: 7 Aug 2009

See all articles by Azi Ben-Rephael

Azi Ben-Rephael

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics

Shmuel Kandel (deceased)

Deceased

Avi Wohl

Tel Aviv University - Coller School of Management

Date Written: July 30, 2008

Abstract

Using a unique database of aggregate daily flows to equity mutual funds in Israel, we find strong support for the "temporary price pressure hypothesis" regarding mutual fund flows: Mutual fund flows create temporary price pressure that is subsequently corrected. We find that flows are positively auto-correlated, and are correlated with market returns (R2 of 20%). Our main finding is that approximately one-half of the price change is reversed within ten trading days. This support for the "temporary price pressure hypothesis" complements microstructure research concerning price impact and price noises in stocks by indicating price noise at the aggregate market level.

Keywords: mutual funds, flows, returns, price pressure, price impact

JEL Classification: G12, G14

Suggested Citation

Ben-Rephael, Azi and Kandel (deceased), Shmuel and Wohl, Avi, The Price Pressure of Aggregate Mutual Fund Flows (July 30, 2008). Available at SSRN: https://ssrn.com/abstract=1295986 or http://dx.doi.org/10.2139/ssrn.1295986

Azi Ben-Rephael

Rutgers University, Newark, School of Business-Newark, Department of Finance & Economics ( email )

111 Washington Avenue
Newark, NJ 07102
United States

HOME PAGE: http://sites.google.com/site/abenreph

Avi Wohl (Contact Author)

Tel Aviv University - Coller School of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel
+972 3 6409051 (Phone)

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