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When is money smart? Mutual fund flows and disposable income

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  • Gupta-Mukherjee, Swasti

Abstract

This study shows that the representative mutual fund investor's ability increases with the time-varying constraints on household disposable income at the aggregate level. I use changes in retail energy prices to proxy for short-run changes in the disposable income of potential investors. Flows to actively-managed U.S. equity funds decrease with the constraints on disposable income. The representative investor shows fund selection and timing ability in periods when the constraints on disposable income sharply increase, but no discernable ability otherwise. The results are consistent with money being smarter when the constraints on household disposable income in the economy are more binding.

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  • Gupta-Mukherjee, Swasti, 2021. "When is money smart? Mutual fund flows and disposable income," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320302373
    DOI: 10.1016/j.frl.2020.101609
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    Cited by:

    1. Choi, Hae Mi & Gupta-Mukherjee, Swasti, 2022. "Price sensitivity of the consumer-investor: Evidence from energy prices and mutual fund fees," Global Finance Journal, Elsevier, vol. 51(C).
    2. Hodula, Martin & Szabo, Milan & Bajzík, Josef, 2024. "Retail fund flows and performance: Insights from supervisory data," Emerging Markets Review, Elsevier, vol. 59(C).

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    More about this item

    Keywords

    Investor ability; Disposable income; Mutual fund flows; Household finance; Energy prices;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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