This paper comprehensively examines investor flows in corporate bond mutual funds. Despite extensive studies in equity funds, little is known about investor flows in bond funds which, with several distinct features, can offer new insights. Using a large sample of corporate bond funds, we first document that flows are sensitive to both fund performance and macro conditions. Then, we show that flows predict fund performance, but this predictability need not be related to momentum or price pressure as argued in prior research. Finally, we examine the predictability of idiosyncratic flows, and find no evidence that fund investors use finer-than-public information.

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Indexing has experienced substantial growth over the last two decades because it is an effective way of holding a diversified portfolio while minimizing trading costs and taxes. In this article, we focus on one negative externality of indexing: the effect on the efficiency of stock prices. Based on a sample of large and liquid US stocks, we find that greater indexing leads to less efficient stock prices, as indicated by stronger post‐earnings‐announcement drift and greater deviations of stock prices from the random walk. We conjecture that reduced incentives for information acquisition and arbitrage induced by indexing and passive trading are probably the main causes for degradation in price efficiency.

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