Today’s update on spending and income for July offers more support for thinking that the latest downshift in economic activity won’t deteriorate into a recession. Personal consumption expenditures (PCE) surged higher in July, rising by 0.8%–the biggest monthly gain in nearly two years and a sharp reversal from June’s slight retreat. If consumption is vulnerable, there’s no sign of it in the latest numbers. Even after adjusting for inflation, PCE was up a strong 0.5%. Disposable personal income (DPI) didn’t fare as well, but still managed a respectable performance by rising 0.3% last month vs. 0.2% in June. Never say never in macroeconomics, but contractions don’t begin with these numbers.
Daily Archives: August 29, 2011
Research Review | 8.29.2011 | Asset Allocation
Seasonal Asset Allocation: Evidence from Mutual Fund Flows
Mark J. Kamstra, et al. | Working Paper | August 1, 2011
This paper explores U.S. mutual fund flows, finding strong evidence of seasonal reallocation across funds based on fund exposure to risk. We show that substantial money moves from U.S. equity to U.S. money market and government bond mutual funds in the fall, then back to equity funds in the spring, controlling for the influence of past performance, advertising, liquidity needs, capital gains overhang, and year-end influences on fund flows. We find a strong correlation between mutual fund net flows (and within-fund-family exchanges) and the onset of and recovery from seasonal depression, consistent with the hypothesis that investor risk aversion varies with the seasons. Further, we find stronger seasonality in Canadian fund flows (a more northerly location relative to the U.S., where seasonal depression is more severe), and a reverse seasonality in fund flows for Australia (where the seasons are reversed). While prior evidence regarding the influence of seasonal depression on financial markets relies on seasonal patterns in asset returns, we provide the first direct trade-related evidence.