Mutual fund flows and fluctuations in credit and business cycles |
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| Authors: | Azi Ben-Rephael Jaewon Choi Itay Goldstein |
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| Affiliation: | 1. Rutgers Business School, Rutgers University, Newark, NJ 07102, USA;2. Gies College of Business, University of Illinois at Urbana-Champaign, Champaign, IL 61820, USA;3. Yonsei Business School, Yonsei University, Seoul 03722, Republic of Korea;4. Wharton School, University of Pennsylvania, PA 19104, USA;1. Erasmus Scchool of Economics - Burgemeester Oudlaan 50, Erasmus University Rotterdam, Rotterdam PA 3062, the Netherlands;2. Tilburg University - Warandelaan 2, Tilburg AB 5037, the Netherlands;1. Harvard Business School, United States;2. Princeton University, United States;1. Oslo Metropolitan University, Oslo Business School, Pilestredet 46, Oslo 0130, Norway;2. The Arctic University of Norway, Hansine Hansens veg 18, Tromsø N-9019, Norway;3. Department of Banking and Finance, Monash University, 900 Dandenong Rd., Caulfield East VIC 3145, Australia;1. London School of Economics, Houghton Street, WC2A 2AE, London, United Kingdom;2. Inter-American Development Bank 1300 New York Ave NW, Washington, DC, United States |
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| Abstract: | Several measures of credit-market booms are known to precede downturns in real economic activity. We offer an early indicator for all known measures of credit booms. Our measure is based on intra-family flow shifts towards high-yield bond mutual funds. It predicts indicators such as growth in financial intermediary balance sheets, increase in shares of high-yield bond issuers, and downturns of various measures of credit spreads. It also directly predicts the business cycle by positively predicting GDP growth and negatively predicting unemployment. Our results provide support for the investor demand-based narrative of credit cycles and can be useful for policymakers. |
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