Bloomberg: Seasonality of MF Flows
Bloomberg posted an article on how the seasons impact fund flows called, "The Unseen Driver of Mutual Fund Inflows: What Time the Sun Sets." It says, "As seasons change, so do the habits of fund investors. When it's spring and the days get longer, risk appetites grow and cash flows to equities, according to a new study. As winter approaches, safer alternatives like the money market come into favor. Seasonal depression is to blame, the researchers said. A reduction in sunlight worsens people's moods. More is at work in the market than robots battling over earnings and valuation, according to the behavioral branch of analysis from which the study springs. The updated findings, from the paper "Seasonal Asset Allocation: Evidence from Mutual Fund Flows" to run in the Journal of Financial and Quantitative Analysis, surprised its own authors. "I initially thought that depressed people would throw all caution to the wind and do risky things just to get back into a decent frame of mind," Maurice Levi, the University of British Columbia professor who coauthored the report, said by phone. "But they actually tend to withdraw. It's enough to affect the markets." Results like these may interest the mutual fund industry, which spends more than $500 million a year on advertising, the authors said. More research may show that managers anticipating the patterns affect returns in stocks and bonds, they added." It continues, "The study examined monthly fund flows from 1985 to 2006. It concluded that seasons had a statistically significant influence on which asset classes got the most through the year. Levi, along with York University professor Mark Kamstra, University of Toronto associate professor Lisa Kramer and University of Maryland professor Russ Wermers, quantified monthly flows into five fund categories with varying risk profiles. Money market funds were treated as the safest and equities the riskiest. They found net flows into U.S. stocks were below average from September through December and highest from March to June. The opposite was true in money markets, which saw greater inflows in the autumn and subpar inflows for spring. The patterns reduce net flows to equity funds by about $13 billion as days shorten, the authors estimated. They boost flows to safer products by as much as $4 billion in September. "We find strong evidence that this seasonality is correlated with the timing of seasonal variation in risk aversion," the authors wrote. The consequences are "economically large, representing tens of billions of dollars," they said." Note: We're not sure about the reasons behind the flows, but money market funds have seen outflows during the first half of the year and inflows in the second half of the year for 4 years straight.
