Measuring Mutual Fund Flow Pressure As Shock to Stock Returns

47 Pages Posted: 22 Sep 2018 Last revised: 29 Jun 2020

Date Written: February 20, 2020


A large and rapidly growing literature examines the impact of misvaluation on firm policies by using mutual fund outflow-induced price pressure to isolate non-fundamental price variation. I demonstrate that the standard approach to computing outflow-induced price pressure produces a measure that is inadvertently a direct function of a stock's actual realized return during the outflow quarter, raising doubts about its orthogonality to fundamentals. After removing these direct measurements of return, outflows generate a fairly negligible quarterly decline in returns, with no subsequent reversal, and many established results in this literature no longer hold. I provide suggestions for future analysis.

Keywords: mutual funds, fire sales, behavioral finance, corporate policy, instrumental variables

JEL Classification: G23, G34, G31, G30, G14

Suggested Citation

Wardlaw, Malcolm, Measuring Mutual Fund Flow Pressure As Shock to Stock Returns (February 20, 2020). Journal of Finance, Forthcoming, Available at SSRN: or

Malcolm Wardlaw (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

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