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

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

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 a...

Mutual fund flows, expected returns, and the real economy

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, rel...

The Cross - Section of Stock Returns :

Mutual Funds, Part II: Fund Flows and Security Returns

T his study is the second in a two-part analysis of the mutual fund industry. The first part (Fortune 1997, referred to here as " Part I ") examined the basic structure of the industry and discussed the historical relationship between mutual fund flows and returns on both short-term and long-term financial instruments. That study ended with a discussion of the role that momentum investing by mu...

Foreign Fund Flows and Stock Returns: Evidence from India

We study the impact of foreign institutional investor (FII) flows on stock returns in India. We exploit stock-level daily trading data for FII purchases and FII sales during 2006-2011 to separate stocks into those experiencing abnormally high and low FII flow innovations. We find that stocks with high innovations are associated with a coincident price increase that is permanent, whereas stocks ...