The price pressure of aggregate mutual fund flows

Azi Ben-Rephael, Shmuel Kandel, Avi Wohl

Research output: Contribution to journalArticlepeer-review

Abstract

Using a unique database of aggregate daily flows to equity mutual funds in Israel, we find strong support for the "temporary price pressure hypothesis" regarding mutual fund flows: Mutual fund flows create temporary price pressure that is subsequently corrected. We find that flows are positively autocorrelated, and are correlated with market returns (R2 of 20%). Our main finding is that approximately one-half of the price change is reversed within 10 trading days. This support for the "temporary price pressure hypothesis" complements microstructure research concerning price impact and price noise in stocks by indicating price noise at the aggregate market level.

Original languageEnglish
Pages (from-to)585-603
Number of pages19
JournalJournal of Financial and Quantitative Analysis
Volume46
Issue number2
DOIs
StatePublished - 2011
Externally publishedYes

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