This article uses the correlation of money flow among mutual funds to forecast the skewness of stock returns. We develop the Flow Driven Skewness measure and show that it is significantly related to future skewness of stock returns. Stocks with higher correlation between their mutual fund owners’ money flow are therefore more “crash prone.” The relation between Flow Driven Skewness and future firm-level skewness is especially important for the largest and the smallest firms in the sample, and remains true for all levels of skewness. The findings are robust to alternative drivers of skewness in stock returns, as well as the choice of calculation, empirical methodology, and sample period.

Additional Metadata
Persistent URL dx.doi.org/10.1093/jjfinec/nbw009, hdl.handle.net/1765/94968
Journal Journal of Financial Econometrics
Citation
Gong, X., Lin, C., & Zwinkels, R.C.J. (2016). Forecasting Crashes: Correlated Fund Flows and the Skewness in Stock Returns. Journal of Financial Econometrics. doi:10.1093/jjfinec/nbw009