Mutual fund flows, expected returns, and the real economy

Stephan Jank

No 11-04, CFR Working Papers from University of Cologne, Centre for Financial Research (CFR)

Abstract: The paper explores whether the co-movement of market returns and equity fund flows can be explained by a common response to macroeconomic news. I find that variables that predict the real economy as well as the equity premium are related to mutual fund flows. Changes in dividend-price ratio explain mutual fund flows beyond the information contained in returns. Further predictive variables such as default spread, relative T-Bill rate and, in particular consumption-wealth ratio also explain mutual fund flows. Mutual fund flows are, in accordance with the information-response hypothesis, forward-looking and predict real economic activity.

Keywords: aggregate mutual fund flows; equity premium; return predictability; asset pricing (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2011
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Journal Article: Mutual fund flows, expected returns, and the real economy (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfrwps:1104

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