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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.

Suggested Citation

  • Jank, Stephan, 2011. "Mutual fund flows, expected returns, and the real economy," CFR Working Papers 11-04, University of Cologne, Centre for Financial Research (CFR).
  • Handle: RePEc:zbw:cfrwps:1104
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    Cited by:

    1. Roll, Richard & Schwartz, Eduardo & Subrahmanyam, Avanidhar, 2014. "Trading activity in the equity market and its contingent claims: An empirical investigation," Journal of Empirical Finance, Elsevier, vol. 28(C), pages 13-35.
    2. repec:eee:finlet:v:21:y:2017:i:c:p:126-131 is not listed on IDEAS
    3. Lee, Bong Soo & Paek, Miyoun & Ha, Yeonjeong & Ko, Kwangsoo, 2015. "The dynamics of market volatility, market return, and equity fund flow: International evidence," International Review of Economics & Finance, Elsevier, vol. 35(C), pages 214-227.
    4. repec:eee:ememar:v:31:y:2017:i:c:p:176-192 is not listed on IDEAS
    5. Vassilios Babalos & Guglielmo Maria Caporale & Nicola Spagnolo, 2016. "Equity Fund Flows and Stock Market Returns in the US before and after the Global Financial Crisis: A VAR-GARCH-in-mean Analysis," CESifo Working Paper Series 5932, CESifo Group Munich.
    6. Vidal, Marta & Vidal-García, Javier & Lean, Hooi Hooi & Uddin, Gazi Salah, 2015. "The relation between fees and return predictability in the mutual fund industry," Economic Modelling, Elsevier, vol. 47(C), pages 260-270.
    7. Chia-Lin Chang & Yu-Pei Ke, 2014. "Testing Price Pressure, Information, Feedback Trading, And Smoothing Effects For Energy Exchange Traded Funds," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 9(02), pages 1-26.
    8. Jesus Sierra, 2012. "Consumer Interest Rates and Retail Mutual Fund Flows," Staff Working Papers 12-39, Bank of Canada.
    9. repec:ijb:journl:v:16:y:2017:i:1:p:1-19 is not listed on IDEAS
    10. Paek, Miyoun & Ko, Kwangsoo, 2014. "Aggregate net flows, inflows, and outflows of equity funds: The U.S. versus Japan," Japan and the World Economy, Elsevier, vol. 32(C), pages 85-95.
    11. repec:eee:phsmap:v:493:y:2018:i:c:p:107-115 is not listed on IDEAS
    12. 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.

    More about this item

    Keywords

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

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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