Measuring investor sentiment with mutual fund flows

Azi Ben-Rephael, Shmuel Kandel, Avi Wohl

Research output: Contribution to journalArticlepeer-review

196 Scopus citations


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 "noise" in aggregate market prices induced by investor sentiment.

Original languageEnglish
Pages (from-to)363-382
Number of pages20
JournalJournal of Financial Economics
Issue number2
StatePublished - May 2012
Externally publishedYes

Bibliographical note

Funding Information:
We are grateful to the Investment Company Institute (ICI) for providing us the mutual fund data and to Malcolm Baker and Jeffrey Wurgler for making their Investor Sentiment dataset available. For helpful comments we thank an anonymous referee, Yakov Amihud, Simon Benninga, Jacob Boudoukh, Oded Braverman, Qi Chen, Evgenia (Janya) Golubeva, Eugene Kandel, Nisan Langberg, Jacob Oded, Tom Nohel, Lukasz Pomorski, Jeffrey Pontiff, Bill Schwert (the editor), Meir Statman, Sheridan Titman, Russ Wermers, Jeffrey Wurgler, Gunther Wuyts and seminar participants at the Bank of Israel, the Hebrew University, IDC Herzliya, Ono Academic College, University of Leuven and University of Manheim. Wohl thanks the Henry Crown Institute of Business Research in Israel at Tel Aviv University for partial financial support. Ben-Rephael and Wohl dedicate this paper to the memory of Shmuel Kandel, an outstanding scholar and a wonderful mentor and colleague.


  • Flows
  • Investor sentiment
  • Mutual funds
  • Return predictability
  • Stocks


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