Mutual Fund Flows, Expected Returns, and the Real Economy

Posted: 5 Dec 2010 Last revised: 11 Jun 2014

Date Written: August 17, 2011

Abstract

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.

Keywords: Aggregate Mutual Fund Flows, Equity Premium, Return Predictability, Asset Pricing

JEL Classification: G12, G14

Suggested Citation

Jank, Stephan, Mutual Fund Flows, Expected Returns, and the Real Economy (August 17, 2011). Available at SSRN: https://ssrn.com/abstract=1720105 or http://dx.doi.org/10.2139/ssrn.1720105

Stephan Jank (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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