Aggregate price effects of institutional trading: a study of mutual fund flow and market returns

We study the relation between market returns and aggregate flow into U.S. e quity funds, using daily flow data. The concurrent daily relation is positi ve. Our tests show that this concurrent relation reflects Row and instituti onal trading affecting returns. This daily relation is similar in magnitude to the price impact reported for an individual institution's trades in a s tock. Aggregate flow also follows market returns with a one-day lag. The la gged response of flow suggests either a common response of both returns and now to new information, or positive feedback trading. (C) 2001 Elsevier Sc ience S.A. All rights reserved. JEL classification: G23; G14.