Hostname: page-component-848d4c4894-pjpqr Total loading time: 0 Render date: 2024-06-25T16:09:33.943Z Has data issue: false hasContentIssue false
  • English
  • Français

Seasonal Asset Allocation: Evidence from Mutual Fund Flows

Published online by Cambridge University Press:  20 February 2017

Mark J. Kamstra ,
Lisa A. Kramer ,
Maurice D. Levi  and
Russ Wermers
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We analyze the flow of money between mutual fund categories, finding strong evidence of seasonality in investor risk aversion. Aggregate investor flow data reveal an investor preference for safe mutual funds in autumn and risky funds in spring. During September alone, outflows from equity funds average $13 billion, controlling for previously documented flow determinants (e.g., capital-gains overhang). This movement of large amounts of money between fund categories is correlated with seasonality in investor risk aversion, consistent with investors preferring safer (riskier) investments in autumn (spring). We find consistent evidence in Canada and also in Australia, where seasons are offset by 6 months.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 52 , Issue 1 , February 2017 , pp. 71 - 109
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2017 

Footnotes

1 We are grateful to an anonymous referee for helpful comments. We have benefited from valuable conversations with Devraj Basu, Hendrik Bessembinder (the editor), Michael Brennan, Raymond da Silva Rosa, Kent Daniel, Ramon DeGennaro, Darren Duxbury, Roger Edelen, Zekeriya Eser, Henry Fenig, Mark Fisher, Kenneth Froot, Luis Goncalves-Pinto, Rob Heinkel, Woodrow Johnson, Alan Kraus, David Laibson, Josef Lakonishok, Dong Lou, José Vincente Martinez, Vasant Naik, Sergei Polevikov, Veronika Pool, Jacob Sagi, Rudi Schadt, Kelly Shue, Neal Stoughton, Rodney Sullivan, Ellis Tallman, Geoffrey Tate, Robin Thurston, Paula Tkac, William Zame, and seminar and conference participants at ASU, CUHK, the Federal Reserve Bank of Atlanta, George Mason University, Maastricht University, Peking University, Queen’s University, UBC, the University of Guelph, UNC at Chapel Hill, the University of Utah, Western University, the 3L Finance Workshop at the National Bank of Belgium, the 2011 Academy of Behavioral Finance and Economics Conference, the 2014 AFA meetings, the 2012 Australasian Finance and Banking Conference, the 2003 CIRANO Fund Management Conference, the 2012 EFA meetings, the 2011 FIRS, the 2010 Household Heterogeneity and Household Finance Conference, the 2011 IIEP/IMF Advances in Behavioral Finance Conference, the 2014 Mitsui Finance Conference at the University of Michigan, the 2013 NBER Behavioral Economics Conference, the 2014 QMUL Behavioural Finance Working Group Conference, and the 2004 Wharton Mutual Funds Conference. We thank the Investment Company Institute, the Investment Funds Institute of Canada, and Morningstar for generously providing much of the data used in this study and Sean Collins and Sukanya Srichandra for help in interpreting the U.S. and Canadian data, respectively. Kamstra, Kramer, and Levi gratefully acknowledge the financial support of the Social Sciences and Humanities Research Council of Canada. Kramer additionally thanks the Canadian Securities Institute Research Foundation for generous financial support. Any remaining errors are our own.

References

Aydogdu, M., and Wellman, J. W.. “The Effects of Advertising on Fund Flows: Results from a New Database.” Financial Management, 40 (2011), 785–809.Google Scholar
Bassi, A.; Colacito, R.; and Fulghieri, P.. “'O Sole Mio: An Experimental Analysis of Weather and Risk Attitudes in Financial Decisions.” Review of Financial Studies, 26 (2013), 1824–1852.Google Scholar
Ben-Rephael, A.; Kandel, S.; and Wohl, A.. “The Price Pressure of Aggregate Mutual Fund Flows.” Journal of Financial and Quantitative Analysis, 46 (2011), 585–603.Google Scholar
Ben-Rephael, A.; Kandel, S.; and Wohl, A.. “Measuring Investor Sentiment with Mutual Fund Flows.” Journal of Financial Economics, 104 (2012), 363–382.Google Scholar
Bergstresser, D., and Poterba, J.. “Do After-Tax Returns Affect Mutual Fund Inflows?” Journal of Financial Economics, 63 (2002), 381–414.CrossRefGoogle Scholar
Carton, S.; Jouvent, R.; Bungenera, C.; and Widlöcher, D.. “Sensation Seeking and Depressive Mood.” Personality and Individual Differences, 13 (1992), 843–849.CrossRefGoogle Scholar
Carton, S.; Morand, P.; Bungenera, C.; and Jouvent, R.. “Sensation-Seeking and Emotional Disturbances in Depression: Relationships and Evolution.” Journal of Affective Disorders, 13 (1995), 219–225.Google Scholar
Eisenberg, A. E.; Baron, J.; and Seligman, M. E. P.. “Individual Differences in Risk Aversion and Anxiety.” Working Paper, University of Pennsylvania (1998).Google Scholar
Engle, R. F.“Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of UK Inflation.” Econometrica, 50 (1982), 987–1008.CrossRefGoogle Scholar
Gallaher, S.; Kaniel, R.; and Starks, L.. “Mutual Funds and Advertising.” Working Paper, University of Texas at Austin (2006).Google Scholar
Garrett, I.; Kamstra, M. J.; and Kramer, L. A.. “Winter Blues and Time Variation in the Price of Risk.” Journal of Empirical Finance, 12 (2005), 291–316.CrossRefGoogle Scholar
Guiso, L.; Sapienza, P.; and Zingales, L.. “Time Varying Risk Aversion.” Working Paper, University of Chicago (2013).Google Scholar
Hansen, L. P.“Large Sample Properties of Generalized Method of Moments Estimators.” Econometrica, 50 (1982), 1029–1084.Google Scholar
Harlow, W. V., and Brown, K. C.. “Understanding and Assessing Financial Risk Tolerance: A Biological Perspective.” Financial Analysts Journal, 6 (1990), 50–80.CrossRefGoogle Scholar
Harmatz, M. G.; Well, A. D.; Overtree, C. E.; Kawamura, K. Y.; Rosal, M.; and Ockene, I. S.. “Seasonal Variation of Depression and Other Moods: A Longitudinal Approach.” Journal of Biological Rhythms, 15 (2000), 344–350.Google Scholar
Hirshleifer, D., and Shumway, T.. “Good Day Sunshine: Stock Returns and the Weather.” Journal of Finance, 58 (2003), 1009–1032.CrossRefGoogle Scholar
Horvath, P., and Zuckerman, M.. “Sensation Seeking, Risk Appraisal, and Risky Behavior.” Personality and Individual Differences, 14 (1993), 41–52.Google Scholar
Indro, D. C.“Does Mutual Fund Flow Reflect Investor Sentiment?” Journal of Behavioral Finance, 5 (2004), 105–115.Google Scholar
Investment Company Institute. Mutual Fund Fact Book: A Guide to Trends and Statistics in the Mutual Fund Industry, 43rd ed. Washington, DC: Investment Company Institute (2003).Google Scholar
Investment Company Institute. Mutual Fund Fact Book: A Review of Trends and Activity in the Investment Company Industry, 54th ed. Washington, DC: Investment Company Institute (2014).Google Scholar
Ippolito, R. A.“Consumer Reaction to Measures of Poor Quality: Evidence from the Mutual Fund Industry.” Journal of Law and Economics, 35 (1992), 45–70.Google Scholar
Jain, P. C., and Wu, J. S.. “Truth in Mutual Fund Advertising: Evidence on Future Performance and Fund Flows.” Journal of Finance, 55 (2000), 937–958.CrossRefGoogle Scholar
Johnson, W. T., and Poterba, J. M.. “Taxes and Mutual Fund Inflows around Distribution Dates.” NBER Working Paper 13884 (2008).Google Scholar
Kamstra, M. J.; Kramer, L. A.; and Levi, M. D.. “Winter Blues: A SAD Stock Market Cycle.” American Economic Review, 93 (2003), 324–343.Google Scholar
Kamstra, M. J.; Kramer, L. A.; and Levi, M. D.. “A Careful Re-Examination of Seasonality in International Stock Markets: Comment on Sentiment and Stock Returns.” Journal of Banking and Finance, 36 (2012), 934–956.Google Scholar
Kamstra, M. J.; Kramer, L. A.; and Levi, M. D.. “Seasonal Variation in Treasury Returns.” Critical Finance Review, 4 (2015), 45–115.CrossRefGoogle Scholar
Kamstra, M. J.; Kramer, L. A.; Levi, M. D.; and Wang, T.. “Seasonally Varying Preferences: Theoretical Foundations for an Empirical Regularity.” Review of Asset Pricing Studies, 4 (2014), 39–77.CrossRefGoogle Scholar
Karceski, J.“Returns-Chasing Behavior, Mutual Funds, and Beta’s Death.” Journal of Financial and Quantitative Analysis, 37 (2002), 559–594.CrossRefGoogle Scholar
Kasper, S.; Wehr, T. A.; Bartko, J. J.; Gaist, P. A.; and Rosenthal, N. E.. “Epidemiological Findings of Seasonal Change in Mood and Behavior: A Telephone Survey of Montgomery County, Maryland.” Archives of General Psychiatry, 46 (1989), 823–833.Google Scholar
Kramer, L. A., and Weber, J. M.. “This Is Your Portfolio on Winter: Seasonal Affective Disorder and Risk Aversion in Financial Decision-Making.” Social Psychological and Personality Science, 3 (2012), 193–199.Google Scholar
Kumler, M. P., and Goodchild, M. F.. “The Population Center of Canada—Just North of Toronto?” In Geographical Snapshots of North America. New York, NY: Guilford (1992), 275–279.Google Scholar
Lam, R. W. (ed.). Seasonal Affective Disorder and Beyond: Light Treatment for SAD and Non-SAD Conditions. Washington, DC: American Psychiatric Press(1998a).Google Scholar
Lam, R. W. (ed.). “Seasonal Affective Disorder: Diagnosis and Management.” Primary Care Psychiatry, 4(1998b), 63–74.Google Scholar
Levi, M. D.“Errors in the Variables Bias in the Presence of Correctly Measured Variables.” Econometrica, 41 (1973), 985–986.Google Scholar
MacKinnon, J. G., and White, H.. “Some Heteroskedasticity-Consistent Covariance Matrix Estimators with Improved Finite Sample Properties.” Journal of Econometrics, 29 (1985), 305–325.Google Scholar
Magnusson, A.“An Overview of Epidemiological Studies on Seasonal Affective Disorder.” Acta Psychiatrica Scandinavica, 101 (2000), 176–184.Google Scholar
Malmendier, U., and Nagel, S.. “Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?” Quarterly Journal of Economics, 126 (2011), 373–416.Google Scholar
Mersch, P.“Prevalence from Population Surveys.” In Seasonal Affective Disorder: Practice and Research, Partonen, T. and Magnusson, A., eds. Oxford, UK: Oxford University Press (2001).Google Scholar
Molin, J.; Mellerup, E.; Bolwig, T.; Scheike, T.; and Dam, H.. “The Influence of Climate on Development of Winter Depression.” Journal of Affective Disorders, 37 (1996), 151–155.Google Scholar
Newey, W. K., and West, K. D.. “A Simple, Positive, Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix.” Econometrica, 55 (1987), 703–708.Google Scholar
Newey, W. K., and West, K. D.. “Automatic Lag Selection in Covariance Matrix Estimation.” Review of Economic Studies, 61 (1994), 631–653.CrossRefGoogle Scholar
Pietromonaco, P. R., and Rook, K. S.. “Decision Style in Depression: The Contribution of Perceived Risks versus Benefits.” Journal of Personality and Social Psychology, 52 (1987), 399–408.Google Scholar
Remolona, E. M.; Kleiman, P.; and Gruenstein, D.. “Market Returns and Mutual Fund Flows.” Federal Reserve Bank of New York’s Economic Policy Review, (1997), 33–52.Google Scholar
Reuter, J., and Zitzewitz, E. W.. “Do Ads Influence Editors? Advertising and Bias in the Financial Media.” Quarterly Journal of Economics, 121 (2006), 197–227.Google Scholar
Rosen, L. N.; Targum, S. D.; Terman, M.; Bryant, M. J.; Hoffman, H.; Kasper, S. F.; Hamovit, J. R.; Docherty, J. P.; Welch, B.; and Rosenthal, N. E.. “Prevalence of Seasonal Affective Disorder at Four Latitudes.” Psychiatry Research, 31 (1990), 131–144.Google Scholar
Rosenthal, N. E. Winter Blues, Revised Edition: Everything You Need to Know to Beat Seasonal Affective Disorder. New York, NY: Guilford Press (2006).Google Scholar
Rosenthal, N. E.; Sack, D. A.; Gillin, J. C.; Lewy, A. J.; Goodwin, F. K.; Davenport, Y.; Mueller, P. S.; Newsome, D. A.; and Wehr, T. A.. “Seasonal Affective Disorder: A Description of the Syndrome and Preliminary Findings with Light Therapy.” Archives of General Psychiatry, 41 (1984), 72–80.Google Scholar
Schmidt, L.; Timmermann, A.; and Wermers, R.. “Runs on Money Market Mutual Funds.” American Economic Review, 106 (2016), 2625–2657.Google Scholar
Sciortino, J. J.; Huston, J. H.; and Spencer, R. W.. “Perceived Risk and the Precautionary Demand for Money.” Journal of Economic Psychology, 8 (1987), 339–346.Google Scholar
Sialm, C.; Starks, L. T.; and Zhang, H.. “Defined Contribution Pension Plans: Sticky or Discerning Money?” Journal of Finance, 70 (2015), 805–838.Google Scholar
Sirri, E. R., and Tufano, P.. “Costly Search and Mutual Fund Flows.” Journal of Finance, 53 (1998), 1589–1622.Google Scholar
Smoski, M. J.; Lynch, T. R.; Rosenthal, M. Z.; Cheavens, J. S.; Chapman, A. L.; and Krishnan, R. R.. “Decision-Making and Risk Aversion among Depressive Adults.” Journal of Behavior Therapy, 39 (2008), 567–576.Google Scholar
Terman, M.“On the Question of Mechanism in Phototherapy: Considerations of Clinical Efficacy and Epidemiology.” Journal of Biological Rhythms, 3 (1988), 155–172.Google Scholar
Thompson, C.; Thompson, S.; and Smith, R.. “Prevalence of Seasonal Affective Disorder in Primary Care: A Comparison of the Seasonal Health Questionnaire and the Seasonal Pattern Assessment Questionnaire.” Journal of Affective Disorders, 78 (2004), 219–226.Google Scholar
Warther, V. A.“Aggregate Mutual Fund Flows and Security Returns.” Journal of Financial Economics, 39 (1995), 209–235.Google Scholar
Wong, A., and Carducci, B.. “Sensation Seeking and Financial Risk Taking in Everyday Money Matters.” Journal of Business and Psychology, 5 (1991), 525–530.Google Scholar
Young, M. A.; Meaden, P. M.; Fogg, L. F.; Cherin, E. A.; and Eastman, C. I.. “Which Environmental Variables Are Related to the Onset of Seasonal Affective Disorder?” Journal of Abnormal Psychology, 106 (1997), 554–562.Google Scholar
Zuckerman, M. Biological Bases of Sensation Seeking, Impulsivity and Anxiety. Hillsdale, NJ: Lawrence Erlbaum Associates, Inc. (1983).Google Scholar
Zuckerman, M. Behavioral Expressions and Biosocial Bases of Sensation Seeking. New York, NY: Cambridge University Press (1994).Google Scholar
Supplementary material: File

Kamstra supplementary material

Kamstra supplementary material

Download Kamstra supplementary material(File)
File 648.9 KB