Mutual Fund Flows and Government Bond Returns

40 Pages Posted: 10 Jun 2021 Last revised: 22 Feb 2022

See all articles by Menachem (Meni) Abudy

Menachem (Meni) Abudy

Bar-Ilan University - Graduate School of Business Administration

Daniel Nathan

Bank of Israel; Tel Aviv University - Coller School of Management

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 daily net flows are contemporaneously correlated with price changes of all categories. These price changes are economically significant and they subsequently reverse fully or mostly within 10 trading days. The price reversal indicates that the initial price changes are due to “noise.” We also find that these price distortions affect break-even inflation—a popular measure of inflation expectations. Our findings indicate that even securities that are held by institutions and professional investors are affected by retail sentiment.

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

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

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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