Measuring investor sentiment with mutual fund flows

Azi Ben-Rephael; Shmuel Kandel; Avi Wohl

doi:10.1016/j.jfineco.2010.08.018

Measuring investor sentiment with mutual fund flows

Azi Ben-Rephael, Shmuel Kandel, Avi Wohl

Coller School of Management

Tel Aviv University

Research output: Contribution to journal › Article › peer-review

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 language	English
Pages (from-to)	363-382
Number of pages	20
Journal	Journal of Financial Economics
Volume	104
Issue number	2
DOIs	https://doi.org/10.1016/j.jfineco.2010.08.018
State	Published - May 2012

Keywords

Flows
Investor sentiment
Mutual funds
Return predictability
Stocks

All Science Journal Classification (ASJC) codes

Accounting
Finance
Economics and Econometrics
Strategy and Management

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10.1016/j.jfineco.2010.08.018

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title = "Measuring investor sentiment with mutual fund flows",

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.",

keywords = "Flows, Investor sentiment, Mutual funds, Return predictability, Stocks",

author = "Azi Ben-Rephael and Shmuel Kandel and Avi Wohl",

note = "Funding Information: We are grateful to the Investment Company Institute (ICI) for providing us the mutual fund data and to Malcolm Baker and Jeffrey Wurgler for making their Investor Sentiment dataset available. For helpful comments we thank an anonymous referee, Yakov Amihud, Simon Benninga, Jacob Boudoukh, Oded Braverman, Qi Chen, Evgenia (Janya) Golubeva, Eugene Kandel, Nisan Langberg, Jacob Oded, Tom Nohel, Lukasz Pomorski, Jeffrey Pontiff, Bill Schwert (the editor), Meir Statman, Sheridan Titman, Russ Wermers, Jeffrey Wurgler, Gunther Wuyts and seminar participants at the Bank of Israel, the Hebrew University, IDC Herzliya, Ono Academic College, University of Leuven and University of Manheim. Wohl thanks the Henry Crown Institute of Business Research in Israel at Tel Aviv University for partial financial support. Ben-Rephael and Wohl dedicate this paper to the memory of Shmuel Kandel, an outstanding scholar and a wonderful mentor and colleague.",

year = "2012",

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doi = "10.1016/j.jfineco.2010.08.018",

language = "الإنجليزيّة",

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AU - Ben-Rephael, Azi

AU - Kandel, Shmuel

AU - Wohl, Avi

N1 - Funding Information: We are grateful to the Investment Company Institute (ICI) for providing us the mutual fund data and to Malcolm Baker and Jeffrey Wurgler for making their Investor Sentiment dataset available. For helpful comments we thank an anonymous referee, Yakov Amihud, Simon Benninga, Jacob Boudoukh, Oded Braverman, Qi Chen, Evgenia (Janya) Golubeva, Eugene Kandel, Nisan Langberg, Jacob Oded, Tom Nohel, Lukasz Pomorski, Jeffrey Pontiff, Bill Schwert (the editor), Meir Statman, Sheridan Titman, Russ Wermers, Jeffrey Wurgler, Gunther Wuyts and seminar participants at the Bank of Israel, the Hebrew University, IDC Herzliya, Ono Academic College, University of Leuven and University of Manheim. Wohl thanks the Henry Crown Institute of Business Research in Israel at Tel Aviv University for partial financial support. Ben-Rephael and Wohl dedicate this paper to the memory of Shmuel Kandel, an outstanding scholar and a wonderful mentor and colleague.

PY - 2012/5

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N2 - 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.

AB - 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.

KW - Flows

KW - Investor sentiment

KW - Mutual funds

KW - Return predictability

KW - Stocks

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DO - 10.1016/j.jfineco.2010.08.018

M3 - مقالة

SN - 0304-405X

VL - 104

SP - 363

EP - 382

JO - Journal of Financial Economics

JF - Journal of Financial Economics

IS - 2

ER -

Measuring investor sentiment with mutual fund flows

Abstract

Keywords

All Science Journal Classification (ASJC) codes

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