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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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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. Chang, Chia-Lin & Ke, Yu-Pei, 2014. "Testing Price Pressure, Information, Feedback Trading, and Smoothing Effects for Energy Exchange Traded Funds," MPRA Paper 57625, University Library of Munich, Germany.
  2. Jesus Sierra, 2012. "Consumer Interest Rates and Retail Mutual Fund Flows," Working Papers, Bank of Canada 12-39, Bank of Canada.
  3. 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, Elsevier, vol. 37(8), pages 2733-2749.

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