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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
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Abstract

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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.

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