Forecasting Crashes: Correlated Fund Flows and the Skewness in Stock Returns

38 Pages Posted: 18 Oct 2014

See all articles by Xun Gong

Xun Gong

Tinbergen Institute

Melissa Lin

Erasmus University Rotterdam; Tinbergen Institute

Remco C. J. Zwinkels

Vrije Universiteit Amsterdam; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: October 17, 2014

Abstract

This paper uses the correlation of money flow among mutual funds to forecast the skewness of stock returns. We show that asset returns are highly negatively skewed when their mutual fund owners experience correlated liquidity shocks. In addition, stocks with high mutual fund ownership are more “crash prone”, whereas the returns of stocks with concentrated ownership tend to display more positive skewness.

Keywords: skewness, mutual funds, capital flow

JEL Classification: G12, G17, G23, C58

Suggested Citation

Gong, Xun and Lin, Chunmei and Zwinkels, Remco C.J., Forecasting Crashes: Correlated Fund Flows and the Skewness in Stock Returns (October 17, 2014). Available at SSRN: https://ssrn.com/abstract=2511197 or http://dx.doi.org/10.2139/ssrn.2511197

Xun Gong

Tinbergen Institute ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Chunmei Lin

Erasmus University Rotterdam ( email )

Burgemeester Oudlaan 50
3000 DR Rotterdam, Zuid-Holland 3062PA
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Remco C.J. Zwinkels (Contact Author)

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, NL-1081HV
Netherlands
+31 20 59 85220 (Phone)

HOME PAGE: http://research.vu.nl/en/persons/remco-zwinkels

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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