Abstract
This paper examines the information content on mutual fund flows and investors’ preference/tolerance towards risk. Specifically, we examine the relationship between several categories of mutual fund flows and market credit risk measured by CDS spreads. Our results suggest that equity fund flows are negatively related to market credit risk. On the other hand, money market fund flows are positively related to CDS spreads. We further separate fund flows into retail and institutional funds and relate these fund flows to CDS spreads. Our results suggest that retail fund flows provide insightful information and serve as primary indicators of market credit risk.
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