Mutual fund flows,expected returns,and the real economy |
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Authors: | Stephan Jank |
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Affiliation: | University of Tübingen and Centre for Financial Research Cologne (CFR), Mohlstr. 36, D-72074 Tübingen, Germany |
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Abstract: | This paper investigates the relation between mutual fund flows and the real economy. The findings of this paper support the theory that the positive co-movement of flows into equity funds and stock market returns is explained by a common response to macroeconomic news. Variables that predict the real economy as well as the equity premium – in particular dividend-price ratio, default spread, relative T-Bill rate and consumption-wealth ratio – are related to fund flows and can account for the correlation of flows and market returns. Furthermore, consistent with the information-response hypothesis, mutual fund flows are forward-looking and predict real economic activity. |
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Keywords: | G11 G12 G14 |
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