Mutual Fund Flows and Fluctuations in Credit and Business Cycles

70 Pages Posted: 17 Aug 2016 Last revised: 10 Sep 2018

See all articles by Azi Ben-Rephael

Azi Ben-Rephael

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

Jaewon Choi

University of Illinois at Urbana-Champaign - Department of Finance

Itay Goldstein

University of Pennsylvania - The Wharton School - Finance Department

Date Written: September 4, 2018

Abstract

Several measures of credit-market booms are known to precede downturns in real economic activity. We offer an early indicator for all known measures of credit booms. Our measure is based on intra-family flow shifts towards high-yield bond mutual funds. It predicts indicators such as growth in financial intermediary balance sheets, increase in shares of high-yield bond issuers, and downturns of various measures of credit spreads. It also directly predicts the business cycle by positively predicting GDP growth and negatively predicting unemployment. Our results provide support for the investor demand–based narrative of credit cycles and can be useful for policymakers.

Keywords: Credit Cycle, Business Cycle, Mutual Fund Flows, High-Yield Bonds, Investor Demand, Leading Indicator

JEL Classification: E32, G12

Suggested Citation

Ben-Rephael, Azi and Choi, Jaewon and Goldstein, Itay, Mutual Fund Flows and Fluctuations in Credit and Business Cycles (September 4, 2018). Available at SSRN: https://ssrn.com/abstract=2823162 or http://dx.doi.org/10.2139/ssrn.2823162

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

Jaewon Choi

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Itay Goldstein (Contact Author)

University of Pennsylvania - The Wharton School - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
215-746-0499 (Phone)

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