Measuring investor sentiment with mutual fund flows

Azi Ben-Rephael, Shmuel Kandel, Avi Wohl

Research output: Contribution to journalArticlepeer-review

128 Scopus citations

Abstract

We investigate a proxy for monthly shifts between bond funds and equity funds in the USA: aggregate net exchanges of equity funds. This measure (which is negatively related to changes in VIX) is positively contemporaneously correlated with aggregate stock market excess returns: One standard deviation of net exchanges is related to 1.95% of market excess return. Our main new finding is that 85% (all) of the contemporaneous relation is reversed within four (ten) months. The effect is stronger in smaller stocks and in growth stocks. These findings support the notion of "noise" in aggregate market prices induced by investor sentiment.

Original languageEnglish (US)
Pages (from-to)363-382
Number of pages20
JournalJournal of Financial Economics
Volume104
Issue number2
DOIs
StatePublished - May 2012
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Keywords

  • Flows
  • Investor sentiment
  • Mutual funds
  • Return predictability
  • Stocks

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