Aggregate mutual fund flows and security returns

International fund investment and local market returns

“…As we can see in Table 1, the asset holdings of international equity funds in our sample are heavily concentrated in emerging markets; at the country level, the largest average holdings are in Japan, followed by the UK, the US and the BRIC countries. Over the sample period, emerging markets register positive net inflows (average, total, or scaled by market capitalization), whereas the net inflows of the overall developed markets are 3 The exception is Warther (1995), who studies both equity and bond funds in US.…”

“…2 Their primary focus is to understand a strategic portfolio investment by institutional investors in the equity market across countries. There are now dozens of studies on institutional investment and market returns, led, for example, by the early works on the US markets of Lakonishok et al (1992) and Warther (1995). The former has provided much of our understanding on two aspects of trading by institutional investors: herding, which refers to simultaneously buying (selling) the same stocks that other managers are buying (selling), and positive-feedback trading, which refers to buying past winners and selling past losers.…”

“…The former has provided much of our understanding on two aspects of trading by institutional investors: herding, which refers to simultaneously buying (selling) the same stocks that other managers are buying (selling), and positive-feedback trading, which refers to buying past winners and selling past losers. Using monthly and weekly data, Warther (1995) examines aggregated mutual fund flows and returns (the cash flows into or out of all mutual funds and marketwide returns), and finds evidence of a positive relation between flows and subsequent returns as well as evidence of a negative relation between returns and subsequent flows. Later studies including Froot et al (2001) and Kaminsky et al (2004) have gone beyond national boundaries, extending the literature by studying institutional equity investment across a larger set of countries at various stages of financial development.…”

Global versus Local Asset Pricing: A New Test of Market Integration

“…In the international finance literature, Froot, O'Connell, and Seasholes (2001) show that local stock prices are sensitive to international investor flows and that transitory inflows have a positive future impact on returns. Focusing on mutual funds, Warther (1995) and Zheng (1999) document that investor demand effects may aggregate to the level of the stock market itself. Goetzmann and Massa (2002) show that, at daily frequency, inflows into S&P500 index funds have a direct impact on the stocks that are part of the index.…”

The Economics of Asset Management

“…16 See, for example, Patel, Zeckhauser, and Hendricks (1991), Ippolito (1992), Warther (1995), Gruber (1996), Chevalier and Ellison (1997), Remolana, Kleiman and Gruenstein (1997), Sirri and Tufano (1998), der closed-from solutions intractable. Fortunately, we can perform a Monte Carlo simulation of the possible paths of the fund's NAV and keep track of important features such as the fund's size and its most recent performance.…”