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Andrea Frazzini, Owen A. Lamont
NBER Working Paper No. 11526
Issued in August 2005
NBER Program(s): AP
CF
An NBER digest for this paper is available.
---- Abstract -----
We use mutual fund flows as a measure for individual investor sentiment for different stocks, and find that high sentiment predicts low future returns at long horizons. Fund flows are dumb money by reallocating across different mutual funds, retail investors reduce their wealth in the long run. This dumb money effect is strongly related to the value effect. High sentiment also is associated high corporate issuance, interpretable as companies increasing the supply of shares in response to investor demand.
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