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Market returns and mutual fund flows

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Author Info

  • Eli M. Remolona
  • Paul Kleiman
  • Debbie Gruenstein
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    Abstract

    With the increased popularity of mutual funds come increased concerns. Namely, could a sharp drop in stock and bond prices set off a cascade of redemptions by mutual fund investors and could the redemptions exert further downward pressure on asset markets? The authors analyze this relationship by using instrumental variables--a measuring technique previously unapplied to market returns and mutual fund flows--to determine the effect of returns on flows. Despite market observers' fears of a downward spiral in asset prices, the authors conclude that the short-term effect of market returns on mutual fund flows typically has been too weak to sustain such a spiral.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

    Volume (Year): (1997)
    Issue (Month): Jul ()
    Pages: 33-52

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    Handle: RePEc:fip:fednep:y:1997:i:jul:p:33-52:n:v.3no.2

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    Related research

    Keywords: Mutual funds ; Stock - Prices;

    References

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    1. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 31-50.
    2. Lee, Charles M C & Shleifer, Andrei & Thaler, Richard H, 1991. " Investor Sentiment and the Closed-End Fund Puzzle," Journal of Finance, American Finance Association, vol. 46(1), pages 75-109, March.
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    Cited by:
    1. Stefan Thurner & J. Doyne Farmer & John Geanakoplos, 2010. "Leverage Causes Fat Tails and Clustered Volatility," Cowles Foundation Discussion Papers 1745, Cowles Foundation for Research in Economics, Yale University.
    2. David Ling & Gianluca Marcato & Pat McAllister, 2009. "Dynamics of Asset Prices and Transaction Activity in Illiquid Markets: the Case of Private Commercial Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 359-383, October.
    3. Keith Cuthbertson & Dirk Nitzsche & Niall O' Sullivan, 2004. "UK Mutual Fund Performance: Genuine Stock-Picking Ability or Luck," Money Macro and Finance (MMF) Research Group Conference 2004 55, Money Macro and Finance Research Group.
    4. Philip Strahan, 1998. "Securities class actions, corporate governance and managerial agency problems," Research Paper 9816, Federal Reserve Bank of New York.
    5. Peter Fortune, 1998. "Mutual funds, part II: fund flows and security returns," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 3-22.
    6. Cha, Heung-Joo & Kim, Jaebeom, 2010. "Stock returns and investment trust flows in the Japanese financial market: A system approach," Journal of Asian Economics, Elsevier, vol. 21(4), pages 327-332, August.
    7. David Ling & Andy Naranjo, 2006. "Dedicated REIT Mutual Fund Flows and REIT Performance," The Journal of Real Estate Finance and Economics, Springer, vol. 32(4), pages 409-433, June.
    8. Robert E. Litan, 1997. "Institutions and policies for maintaining financial stability," Proceedings, Federal Reserve Bank of Kansas City, pages 257-297.
    9. Syriopoulos, Theodore, 2002. "Risk aversion and portfolio allocation to mutual fund classes," International Review of Economics & Finance, Elsevier, vol. 11(4), pages 427-447.

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