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Mutual fund flows, expected returns, and the real economy

  • Jank, Stephan

This paper investigates the relation between mutual fund flows and the real economy. The findings of this paper support the theory that the positive co-movement of flows into equity funds and stock market returns is explained by a common response to macroeconomic news. Variables that predict the real economy as well as the equity premium – in particular dividend-price ratio, default spread, relative T-Bill rate and consumption-wealth ratio – are related to fund flows and can account for the correlation of flows and market returns. Furthermore, consistent with the information-response hypothesis, mutual fund flows are forward-looking and predict real economic activity.

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Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 36 (2012)
Issue (Month): 11 ()
Pages: 3060-3070

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Handle: RePEc:eee:jbfina:v:36:y:2012:i:11:p:3060-3070
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

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