60 Pages Posted: 15 Sep 2005
Date Written: August 2005
We use mutual fund flows as a measure for individual investor sentiment for different stocks, and find that high sentiment predicts low future returns at long horizons. Fund flows are dumb money %uF818 by reallocating across different mutual funds, retail investors reduce their wealth in the long run. This dumb money effect is strongly related to the value effect. High sentiment also is associated high corporate issuance, interpretable as companies increasing the supply of shares in response to investor demand.
Suggested Citation: Suggested Citation
Frazzini, Andrea and Lamont, Owen A., Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns (August 2005). NBER Working Paper No. w11526. Available at SSRN: https://ssrn.com/abstract=776014