Mutual fund flows and seasonalities in stock returns

Moritz Wagner (), John Byong-Tek Lee and Dimitris Margaritis

Journal of Banking & Finance, 2022, vol. 144, issue C

Abstract: We propose a flow-based explanation for two long-standing anomalies in empirical finance – Sell in May and the January effect. We find that mutual fund flows exhibit similar seasonal patterns as stock returns. After controlling for fund flows both calendar effects become insignificant. We provide new evidence on what drives this correlation. We show that return seasonality is due to unanticipated fund flow driven by uninformed (flow-motivated) retail investor trading. Active funds indicate flow-induced price pressure with a corresponding reversal of the effect, while passive funds suggest feedback trading instead. These seasonalities are remarkably pervasive, exhibiting little variation across different types of stocks, and are equally strong in periods of either high or low sentiment.

Keywords: Mutual funds; Fund flows; Return seasonality; Price pressure; Feedback trading (search for similar items in EconPapers)
JEL-codes: G12 G14 G23 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Mutual Fund Flows and Seasonalities in Stock Returns (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:144:y:2022:i:c:s0378426622002035

DOI: 10.1016/j.jbankfin.2022.106623

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