Abstract
We present evidence that equity momentum strategies are partially driven by positive-feedback trading intermediated via the mutual fund sector. We identify a U.S.-specific structural break to this channel that substantially weakened the relationship between fund flows and past style returns. As a result, trading strategies that load on flow-driven positive-feedback trading (including momentum in stocks, styles, and factors) experienced a profitability decline. Consistent with the proposed channel, the profitability decline was limited to the U.S. market. Moreover, factors that were more directly exposed to the structural break experienced a sharp return “kink” in the months after the event.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
