Can behavioral finance and consumer confidence frame impermanent asymmetric fund flows?

Abstract

Experiencing an uproar throughout the last decades, mutual funds have become the most widely spread investment vehicle available to non-institutional and uninformed investors, herein referred to as individual investors. Nowadays, an extensive variety of banks and financial intermediaries offer services and ways for individual investors to easily access a comprehensive range of financial markets at low costs thus allowing for more and more individual investors to gush markets with capital. However, recent shakedowns like the scandals in the early 2000’s and the financial crisis in 2008 have changed the financial scene. This in return, is making the study of the character traits embodied by individual investors just as interesting. As such, the aim of this dissertation is to find out whether there is a relationship between the Consumer Confidence Index, the CBOE Volatility Index and net mutual fund flows over a period of thirteen years. The period we are looking at ranges from the pre-crisis era in 2005 to the after- crisis era in 2017. Preliminary findings indicate there is an interesting asymmetric and impermanent relationship between the Consumer Confidence Index and the net mutual fund flows. In order to find out more about why these variables behave the way they do, this dissertation is going to divide the initial data sample into three sub-group periods which will allow for further analysis. This in turn allows to provide answers to the identified impermanent and asymmetric variations. In most cases, behaviors that can be traced back to behavioral biases, are able to explain the shifts experienced in both the mutual fund net flows and the Consumer Confidence Index. The links made between asymmetric and impermanent market moves that have drawn our attention also raise ethical questions that are discussed towards the end of this dissertation.