Behavioral Factors in Mutual Fund Flows

Massimo Massa, William Goetzmann and K. Rouwenhorst

Yale School of Management Working Papers from Yale School of Management

Abstract: Using a sample of daily net flows to nearly 1,000 U.S. mutual funds over a year and a half period, we identify a set of systematic factors that explain a significant amount of the variation in flows. This suggests the existence of a common component to mutual fund investor behavior and indicates which asset classes may be regarded as economic substitutes by the participants in the market for mutual fund shares. We find that flows into equity funds -- both domestic and international -- are negatively correlated to flows to money market funds and precious metals funds. This suggests that investor rebalancing between cash and equity explains a significant amount of trade in mutual fund shares. The negative correlation of equities to metals suggests that this timing is not simply due to liquidity concerns, but rather to sentiment about the equity premium. We address the question of whether behavioral factors spread returns by using the mutual fund flow factors as pre-specified regressors in a Fama-MacBeth asset pricing framework. We find that the factors derived from flows

Date: 2000-03-01, Revised 2001-01-01
New Economics Papers: this item is included in nep-cbe, nep-cfn, nep-dev, nep-fin and nep-rmg
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Working Paper: Behavioral Factors in Mutual Fund Flows (2000)
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