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Does Mutual Fund Flow Reflect Investor Sentiment
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Book Synopsis Does Mutual Fund Flow Reflect Investor Sentiment? by : Daniel Indro
Download or read book Does Mutual Fund Flow Reflect Investor Sentiment? written by Daniel Indro and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between net aggregate equity fund flow and investor sentiment using weekly flow data. Using sentiment indicators from the American Association of Individual Investors and Investors Intelligence, I find that net aggregate equity fund flow in the current week is higher when individual investors became more bullish in the previous and current weeks. Moreover, higher net aggregate equity fund flow in the current week induces newsletter writers to become more bullish in the subsequent week. The relationship between net aggregate equity fund flow and investor sentiment remains strong even after accounting for the effects of risk premium and inflation. Overall, the evidence suggests that the behavior of equity fund investors is influenced not only by economic fundamentals, but also by investor sentiment.
Book Synopsis Measuring Investor Sentiment with Mutual Fund Flows by : Azi Ben-Rephael
Download or read book Measuring Investor Sentiment with Mutual Fund Flows written by Azi Ben-Rephael and published by . This book was released on 2011 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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 quot;noisequot; in aggregate market prices induced by investor sentiment.
Book Synopsis Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows by : Stephen J. Brown
Download or read book Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows written by Stephen J. Brown and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We find evidence that is consistent with the hypothesis that daily mutual fund flows may be instruments for investor sentiment about the stock market. We use this finding to construct a new index of investor sentiment, and validate this index using data from both the United States and Japan. In both markets exposure to this factor is priced, and in the Japanese case, we document evidence of negative correlations between Bull' and Bear' domestic funds. The flows to bear foreign funds in Japan display some evidence of negative correlation to domestic and foreign equity funds, suggesting that there is a foreign vs. domestic sentiment factor in Japan that does not appear in the contemporaneous U.S. data. By contrast, U.S. mutual fund investors appear to regard domestic and foreign equity mutual funds as economic substitutes.
Book Synopsis Mutual Fund Flows and Investor Sentiment by : Egle Karmaziene
Download or read book Mutual Fund Flows and Investor Sentiment written by Egle Karmaziene and published by . This book was released on 2016 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: I show that the shape of flow-performance relationship among open-end funds varies with investor sentiment. This link is stronger when the market tone is optimistic. Cross-sectional comparison reveals that the convexity of the relationship is more pronounced among funds of the type that receives less demand; especially among risky funds in low-investor-sentiment quarters. Managers of such funds that are under-performing have incentives to increase the risk of their portfolios; they do this by betting more on the market index and buying larger stocks in low-sentiment quarters. Applying Baker and Wurgler's (2006) findings suggests that this strategy is sub-optimal.
Book Synopsis Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows by :
Download or read book Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows written by and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Sentimental Mutual Fund Flows by : George J. Jiang
Download or read book Sentimental Mutual Fund Flows written by George J. Jiang and published by . This book was released on 2019 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: We show that many stylized empirical patterns for mutual fund flows are driven by investor sentiment. Specifically, when sentiment is high, investors exhibit a stronger tendency of chasing past fund performance; fund flows are less sensitive to fund expenses; and investors are attracted more to funds with sheer visibility. Moreover, the well-documented positive relation between fund flows and future fund performance is significant only during high sentiment periods and is mainly driven by expected component of fund flows. Finally, we show that mutual fund investors exhibit a significantly negative timing ability at the individual fund level when sentiment is high.
Book Synopsis Swing Pricing and Fragility in Open-end Mutual Funds by : Dunhong Jin
Download or read book Swing Pricing and Fragility in Open-end Mutual Funds written by Dunhong Jin and published by International Monetary Fund. This book was released on 2019-11-01 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: How to prevent runs on open-end mutual funds? In recent years, markets have observed an innovation that changed the way open-end funds are priced. Alternative pricing rules (known as swing pricing) adjust funds’ net asset values to pass on funds’ trading costs to transacting shareholders. Using unique data on investor transactions in U.K. corporate bond funds, we show that swing pricing eliminates the first-mover advantage arising from the traditional pricing rule and significantly reduces redemptions during stress periods. The positive impact of alternative pricing rules on fund flows reverses in calm periods when costs associated with higher tracking error dominate the pricing effect.
Download or read book Dumb Money written by Andrea Frazzini and published by . This book was released on 2010 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use mutual fund flows as a measure for individual investor sentiment for different stocks, and find that high sentiment predicts low future returns at long horizons. Fund flows are dumb money %uF818 by reallocating across different mutual funds, retail investors reduce their wealth in the long run. This dumb money effect is strongly related to the value effect. High sentiment also is associated high corporate issuance, interpretable as companies increasing the supply of shares in response to investor demand.
Book Synopsis The Asymmetric Effects of Investor Sentiment by : Chandler Lutz
Download or read book The Asymmetric Effects of Investor Sentiment written by Chandler Lutz and published by . This book was released on 2016 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use the returns on lottery-like stocks to construct a novel index for investor sentiment in the stock market. This new measure is closely related to previously developed sentiment indicators, but more accurately tracks speculative episodes over the sample period. Using our index, we find that the relationship between sentiment and returns is asymmetric: during bear markets, high sentiment predicts low future returns for the cross-section of speculative stocks and the market overall while the relationship during bull markets is weak and often insignificant. Thus, the results suggest that sophisticated investors only act as corrective force during certain time periods. We also show that our index predicts implied volatility, media pessimism, and mutual fund flows. Overall, our findings are consistent with both the theories and anecdotal accounts of investor sentiment in the stock market.
Book Synopsis On Market Timing and Investment Performance Part I by : Robert C Merton
Download or read book On Market Timing and Investment Performance Part I written by Robert C Merton and published by Legare Street Press. This book was released on 2022-10-27 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This work has been selected by scholars as being culturally important, and is part of the knowledge base of civilization as we know it. This work is in the "public domain in the United States of America, and possibly other nations. Within the United States, you may freely copy and distribute this work, as no entity (individual or corporate) has a copyright on the body of the work. Scholars believe, and we concur, that this work is important enough to be preserved, reproduced, and made generally available to the public. We appreciate your support of the preservation process, and thank you for being an important part of keeping this knowledge alive and relevant.
Book Synopsis Mutual Fund Flows and Performance Streaks - How Mutual Fund Selection is Driven by Behavioural Biases by : Kai Aschick
Download or read book Mutual Fund Flows and Performance Streaks - How Mutual Fund Selection is Driven by Behavioural Biases written by Kai Aschick and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis contributes to existing literature by analysing the role of performance streaks in the US mutual fund industry. Existing research suggests that performance streaks, i.e. multiple consecutive months of positive or negative performance, are an important determinant of mutual fund flows. My dataset comprises monthly returns and net-flows from US equity mutual funds from 1996 through 2015. My first analysis shows that streaks are not an indication of performance persistence and should not be used in investment decisions. Next, I develop two forecasting models using streaks based on several different performance metrics, such as excess returns and CAPM-alphas. The first one is a probit model that forecasts future investor sentiment, measured by the sign of future net-flows. This model is very robust to different time period specifications. The second one is a multiple linear regression model that forecasts actual future net- flows. The performance of this model strongly depends on the time period specified, as it performs poorly following the financial crisis. In both models the best-performing specification uses streaks based on CAPM-alphas. However, a Shapley decomposition reveals that streaks are, despite being statistically significant, the least-important predictors of future net-flows. Instead, lagged net-flows are the most-important determinants of future net-flows. The results of this thesis suggest that active streaks tip the scales when investors decide between two or more funds with a comparable track record. Hence, the results presented are ambiguous regarding investor rationality.
Book Synopsis The Implications of Investor Behaviour to Financial Markets by : Lisa Desiree Majmin
Download or read book The Implications of Investor Behaviour to Financial Markets written by Lisa Desiree Majmin and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial markets are subject to sentiment from within and beyond their nation's borders. Fund flows either flood markets with liquidity, or drain them to the point of asset fire sales. This typically occurs in accordance with investors' beliefs and risk preferences and ultimately renders markets unstable. This thesis serves to establish the implications of investor behaviour to financial markets. Chapter 2 proposes macro sentiment as a leading indicator for financial instability within the Early Warning Framework of Borio & Lowe (2002). This signalling method identifies imbalances within the financial system. Key indicators include real equity and property prices, and private credit. Macro sentiment is then shown to display excess pessimism prior to systemic crises and therefore, is a relevant leading indicator. US institutional investor sentiment is measured through the demand for portfolio insurance in Chapter 3. Shefrin (1999) advocates index option markets as the manifestation of institutional investor sentiment. A decrease in index option skewness is associated with bearish sentiment. This chapter applies a non-parametric method to extract the risk-neutral distribution to gauge sentiment based on the 30-day probability of the underlying reaching the at-the-money futures level, and the third moment. These measures are examined in relation to the VIX, the put-call ratio, the slope of the implied volatility function and the Bakshi, Kapadia & Madan (2003) skew. Chapter 4 proposes a theory of sentiment propagation and examines the link between global and investor sentiment within the US. An extensive literature review of mutual fund flows and sentiment within the broad context of the macroeconomy affirms the use of cross-border fund flows as the channel through which sentiment propagates. The empirical section then establishes congruency between global sentiment, as measured by dedicated USA equity and bond fund flows of US and non-US domiciled investors and sentiment within the US.
Book Synopsis Which Factors Matter to Investors? Evidence from Mutual Fund Flows by : Brad M. Barber
Download or read book Which Factors Matter to Investors? Evidence from Mutual Fund Flows written by Brad M. Barber and published by . This book was released on 2016 with total page 77 pages. Available in PDF, EPUB and Kindle. Book excerpt: When assessing a fund manager's skill, sophisticated investors will consider all factors (priced and unpriced) that explain cross-sectional variation in fund performance. We investigate which factors investors attend to by analyzing mutual fund flows as a function of recent returns decomposed into alpha and factor-related returns. Surprisingly, investors attend most to market risk (beta) when evaluating funds and treat returns attributable to size, value, momentum, and industry factors as alpha. Using proxies for investor sophistication (wealth, distribution channels, and periods of high investor sentiment), we find that more sophisticated investors use more sophisticated benchmarks when evaluating fund performance.
Book Synopsis Sentiment Issues in Stock Prices and Mutual Funds by : John A. Haslem
Download or read book Sentiment Issues in Stock Prices and Mutual Funds written by John A. Haslem and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Baker and Wurgler [2007] take a “top down” approach to behavioral finance and the stock market. Investor sentiment is taken to be exogenous and the focus is on its empirical effects. Sentiment is measurable and its waves have clearly discernible, important, and regular effects on firms and the overall stock market. Stocks that are hardest to arbitrage or value are most affected by sentiment.Other studies discussed relate to aspects of investor sentiment and sentiment indexes in Baker and Wurgler [2007] and/or Baker and Wurgler [2006]. Massa and Yadav [2012] analyze whether mutual funds opportunistically exploit market inability to identify sentiment risk. Gasbarro et al. [2012] determine that when fund investor sentiment is high (low), returns are higher for funds with low (high) sentiment-beta portfolios. Irek and Lehnert [2013] use the sentiment index and find that market risk is not a priced factor of expected fund returns when investor sentiment is positive. Sibley et al. [2013] determine that although sentiment is orthogonal to macroeconomic conditions, sentiment indexes have substantial information related to business cycles. Joseph et al. [2011] find that intensity of searches for ticker symbols serves as a valid proxy for investor sentiment, which is useful for forecasting stock returns and trade volume. Huang et al. [2014] determine that the sentiment index likely understates the predictive power of investor sentiment.
Book Synopsis Three Essays on Mutual Funds by : Xuemei Guo
Download or read book Three Essays on Mutual Funds written by Xuemei Guo and published by . This book was released on 2017 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation investigates the determinants of mutual fund flows and mutual fund performance. The first chapter examines the response of fund investors to style volatility and the impact of style volatility on the flow-performance relationship. Three main empirical findings are obtained using both a portfolio approach and a multivariate regression approach. First, I find that there is a significant positive relationship between the style volatility and the subsequent fund flows to mutual funds. This finding can be interpreted as either fund managers having style timing ability or fund managers catering to investors preferences or tastes. Second, the positive relationship between past style volatility and fund flows is less pronounced for funds with superior past performance. Lastly, fund style volatility has a dampening effect on the flow-performance relationship: the flow-performance sensitivity weakens by 12% when the past style volatility increases by one standard deviation. It is likely that performance is perceived as a less informative signal of investment ability for fund managers who follow inconsistent styles over time. The second chapter studies how the response of fund investors to past risk varies over business cycles. I employ the NBER boom indicator, the Consumer Sentiment Index, and the National Activity Index to proxy for economic conditions. I find that mutual fund investors react differently to risk across economic environments. Funds with more volatile past returns discourage fund investors. The investors’ demand for actively managed funds is higher under good market conditions. Fund flows are less responsive to risk during expansionary economic periods. This finding may indicate that fund investors are risk averse and become less risk averse in good market states. The third chapter empirically examines whether mutual fund performance is affected by prior family performance. I propose two testable hypotheses: the information and resource sharing hypothesis and the cross-fund subsidization hypothesis. The empirical findings suggest that there is a significant positive relationship between prior family performance and subsequent fund performance. This finding is consistent with the hypothesis that mutual funds in the same family share informational resources. This positive relation also justifies the finding in the mutual fund flow literature that fund flows are higher for funds with higher past family performance. Furthermore, I find that the predictive power of the prior family performance is stronger in larger fund families.
Book Synopsis The Role of Market Sentiment in Asset Allocations and Stock Returns by : Jitka Hilliard
Download or read book The Role of Market Sentiment in Asset Allocations and Stock Returns written by Jitka Hilliard and published by . This book was released on 2019 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the role of mutual fund flows in incorporating market sentiment into asset prices. We show that retail investors adjust their investments among mutual fund categories in response to changes in market sentiment. Consistent with sentiment-induced price pressure through fund flows, we further find that firms favored by mutual funds, such as large-cap, dividend payers, and firms with high institutional ownership are sensitive to market sentiment. We construct a pricing factor representing sentiment risk and find that the sentiment factor is significant in standard asset pricing models and robust to various sorting procedures.
Book Synopsis Handbook of Financial Intermediation and Banking by : Anjan V. Thakor
Download or read book Handbook of Financial Intermediation and Banking written by Anjan V. Thakor and published by Elsevier. This book was released on 2008-07-07 with total page 605 pages. Available in PDF, EPUB and Kindle. Book excerpt: The growth of financial intermediation research has yielded a host of questions that have pushed "design" issues to the fore even as the boundary between financial intermediation and corporate finance has blurred. This volume presents review articles on six major topics that are connected by information-theoretic tools and characterized by valuable perspectives and important questions for future research. Touching upon a wide range of issues pertaining to the designs of securities, institutions, trading mechanisms and markets, industry structure, and regulation, this volume will encourage bold new efforts to shape financial intermediaries in the future. Original review articles offer valuable perspectives on research issues appearing in top journals Twenty articles are grouped by six major topics, together defining the leading research edge of financial intermediation Corporate finance researchers will find affinities in the tools, methods, and conclusions featured in these articles
