This paper investigates the relation between mutual fund flows and the real economy. The findings of this paper support the theory that the positive co-movement of flows into equity funds and stock market returns is explained by a common response to macroeconomic news. Variables that predict the real economy as well as the equity premium – in particular dividend-price ratio, default spread, rel...

T he number of mutual funds has grown dramatically in recent years. The Financial Research Corporation data base, the source of data for this article, lists 7,734 distinct mutual fund portfolios. Mutual funds are now the preferred way for individual investors and many institutions to participate in the capital markets, and their popularity has increased demand for evaluations of fund performanc...

The contribution of this paper is two-fold. First, we show that mutual fund theorems hold when minimizing the probability of lifetime ruin (that is, wealth reaching zero before death), as Merton (1971) does when maximizing the utility of consumption. Bayraktar and Young (2007a) determine when the investment strategies are identical under the two problems of maximizing utility of consumption or ...