Mutual fund flows: Where does the money go?

We examine three broad mutual fund sectors: equities, fixed income, and money market funds, to ascertain whether fund flows explain investment returns or whether investment returns attract funds. This question has been studied before but for the most part, research results have not been intuitive. Our findings are substantially different from the results of previous studies. We believe that our results are intuitively more obvious. We fail to reject both causal hypotheses. That is, we find that investment returns are affected by funds flows and that funds flows towards high returns.