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Mutual fund flows, expected returns, and the real economy

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  • Jank, Stephan

Abstract

The paper explores whether the co-movement of market returns and equity fund flows can be explained by a common response to macroeconomic news. I find that variables that predict the real economy as well as the equity premium are related to mutual fund flows. Changes in dividend-price ratio explain mutual fund flows beyond the information contained in returns. Further predictive variables such as default spread, relative T-Bill rate and, in particular consumption-wealth ratio also explain mutual fund flows. Mutual fund flows are, in accordance with the information-response hypothesis, forward-looking and predict real economic activity. --

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Bibliographic Info

Paper provided by University of Cologne, Centre for Financial Research (CFR) in its series CFR Working Papers with number 11-04.

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Date of creation: 2011
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Handle: RePEc:zbw:cfrwps:1104

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Keywords: aggregate mutual fund flows; equity premium; return predictability; asset pricing;

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Cited by:
  1. Jesus Sierra, 2012. "Consumer Interest Rates and Retail Mutual Fund Flows," Working Papers 12-39, Bank of Canada.
  2. Ülkü, Numan & Weber, Enzo, 2013. "Identifying the interaction between stock market returns and trading flows of investor types: Looking into the day using daily data," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2733-2749.

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