Jiacui Li
How can studying flows in mutual funds and ETFs improve my investment strategy? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Answer by Jiacui Li, Assistant Professor of Finance at University of Utah, David Eccles School of Business, on Quora:
This is an important question because mutual funds and ETFs currently hold around 40% of all U.S. stocks.
Before I provide a few approaches, let’s set up the context. When people invest money into these funds (inflows), the funds need to use this money to buy more stocks. Conversely, when people withdraw their money (outflows), the funds have to sell stocks to give the money back. This pattern of buying and selling is largely predictable; you can expect funds to buy more when they get more money from investors and…