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Dumb Money: Mutual Fund Flows and the Cross-Section of Stock Returns

  • Andrea Frazzini
  • Owen A. Lamont

We use mutual fund flows as a measure for individual investor sentiment for different stocks, and find that high sentiment predicts low future returns at long horizons. Fund flows are dumb money %uF818 by reallocating across different mutual funds, retail investors reduce their wealth in the long run. This dumb money effect is strongly related to the value effect. High sentiment also is associated high corporate issuance, interpretable as companies increasing the supply of shares in response to investor demand.

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File URL: http://www.nber.org/papers/w11526.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11526.

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Date of creation: Aug 2005
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Publication status: published as Frazzini, Andrea & Lamont, Owen A., 2008. "Dumb money: Mutual fund flows and the cross-section of stock returns," Journal of Financial Economics, Elsevier, vol. 88(2), pages 299-322, May.
Handle: RePEc:nbr:nberwo:11526
Note: AP CF
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