Mutual Fund Flows and Government Bond Returns

45 Pages Posted: 10 Jun 2021 Last revised: 20 Feb 2024

See all articles by Menachem (Meni) Abudy

Menachem (Meni) Abudy

Bar-Ilan University - Graduate School of Business Administration

Daniel Nathan

Bank of Israel; University of Pennsylvania - Finance Department

Avi Wohl

Tel Aviv University - Coller School of Management

Date Written: January 31, 2022

Abstract

We investigate daily flows to Israeli government bonds mutual funds, which are held primarily by retail investors. We divide the bonds into six categories: nominal/CPI-linked - short-term, intermediate-term, and long-term maturity. We find that unexpected daily net flows are contemporaneously correlated with price changes in all categories, with correlations ranging from 0.094 to 0.221 depending on the bond category. These price changes are significant, and they subsequently reverse fully or mostly within 10 trading days. The price reversal indicates that the initial price changes are due to “price pressure.” We find that these price distortions affect break-even inflation—a measure of inflation expectations. Our findings indicate that even government bonds are affected by retail price pressure.

Keywords: Investor sentiment, government bonds, mutual fund flows, break-even inflation

JEL Classification: G12, E43

Suggested Citation

Abudy, Menachem (Meni) and Nathan, Daniel and Wohl, Avi, Mutual Fund Flows and Government Bond Returns (January 31, 2022). Available at SSRN: https://ssrn.com/abstract=3863338 or http://dx.doi.org/10.2139/ssrn.3863338

Menachem (Meni) Abudy (Contact Author)

Bar-Ilan University - Graduate School of Business Administration ( email )

Ramat Gan
Israel

Daniel Nathan

Bank of Israel ( email )

P.O. Box 780
Jerusalem, 91907
Israel

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Avi Wohl

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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