middle easten
Do fund flows cause the value and momentum effects?

Do fund flows cause the value and momentum effects?

05-05-2016 | From the field

In this study the authors argue that the value and momentum effects may be the result of fund flows. They propose a model in which flows between investment funds are triggered by changes in fund managers’ efficiency, which investors either observe directly or infer from past performance.

  • David Blitz
    David
    Blitz
    PhD, Executive Director, Head of Quant Selection Research

They find that momentum arises if fund flows exhibit inertia, and because rational prices do not fully adjust to reflect future flows. A value (reversal) effect arises because flows push prices away from fundamental values.

Besides momentum and value effects, the model also predicts co-movement, lead-lag effects and amplification, with these being larger for high-idiosyncratic-risk assets. We like this study because it helps to rationalize the existence of the value and momentum effects, which are typically attributed to ‘irrational’ investor behavior.

Stay informed on Quant investing with monthly mail updates
Stay informed on Quant investing with monthly mail updates
Subscribe
From the field
From the field

Our researchers publish many whitepapers based on their own empirical studies; they also follow quantitative research done by others.

Read all articles

Disclaimer

Robeco Institutional Asset Management B.V. (Dubai office) is regulated by the Dubai Financial Services Authority (“DFSA”) and only deals with Professional Clients and does not deal with Retail Clients as defined by the DFSA.

Neither information nor any opinion expressed on the website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, annual and semi-annual reports, which can be all be obtained free of charge at this website and at the Robeco offices in each country where Robeco has a presence.

Please confirm that you are a professional investor and/or institutional investor and that you have read, understood and accept the terms of use for this website.

I Disagree