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

Andrea Frazzini () and Owen Lamont

No 11526, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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 – 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.

JEL-codes: G14 G23 G32 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-fin and nep-fmk
Note: AP CF
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Citations: View citations in EconPapers (18)

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.

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Journal Article: Dumb money: Mutual fund flows and the cross-section of stock returns (2008)
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