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Aggregate Price Effects of Institutional Trading: A Study of Mutual Fund Flow and Market Returns

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  • Roger M. Edelen
  • Jerold B. Warner

Abstract

We study the relation between market returns and aggregate flow into U.S. equity funds, using daily flow data. The concurrent daily relation is positive. Our tests show that this concurrent relation reflects flow and institutional trading affecting returns. This daily relation is similar in magnitude to the price impact reported for an individual institution's trades in a stock. Aggregate flow also follows market returns with a one-day lag. The lagged response of flow suggests either a common response of both returns and flow to new information, or positive feedback trading.

Suggested Citation

  • Roger M. Edelen & Jerold B. Warner, 1999. "Aggregate Price Effects of Institutional Trading: A Study of Mutual Fund Flow and Market Returns," Center for Financial Institutions Working Papers 99-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
    • Handle: RePEc:wop:pennin:99-01
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    File URL: http://fic.wharton.upenn.edu/fic/papers/99/9901.pdf
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    Cited by:

    1. Peress, Joel & Schmidt, Daniel, 2021. "Noise traders incarnate: Describing a realistic noise trading process," Journal of Financial Markets, Elsevier, vol. 54(C).

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