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Dumb money: Mutual fund flows and the cross-section of stock returns

  • Frazzini, Andrea
  • Lamont, Owen A.

We use mutual fund flows as a measure of individual investor sentiment for different stocks, and find that high sentiment predicts low future returns. Fund flows are dumb money-by reallocating across different mutual funds, retail investors reduce their wealth in the long run. This dumb money effect is related to the value effect: high sentiment stocks tend to be growth stocks. High sentiment also is associated with high corporate issuance, interpretable as companies increasing the supply of shares in response to investor demand.

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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 88 (2008)
Issue (Month): 2 (May)
Pages: 299-322

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Handle: RePEc:eee:jfinec:v:88:y:2008:i:2:p:299-322
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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