Do investors "reach for income"? Evidence from Finnish mutual fund flows

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School of Business | Bachelor's thesis
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Date

2024

Department

Rahoituksen laitos

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Mcode

Degree programme

Rahoitus

Language

en

Pages

23

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Abstract

In this bachelor’s thesis, I examine the relationship between changes in monetary policy and mutual fund flows, focusing on whether the “reaching for income” hypothesis holds in the Finnish mutual fund market. Specifically, I investigate whether Finnish mutual fund investors alter their exposure to income-generating assets in response to changes in interest rates. To determine this, I construct regressions to analyze the relationship between mutual funds flows and changes in the ECB deposit facility rate. Using two different definitions of flow, my empirical analysis presents robust evidence that non-income-generating mutual fund share classes experience significantly lower flows during rate hikes than their income-generating counterparts. My results challenge the feasibility of the hypothesis and diverge from previous literature, which shows that rate hikes are usually associated with outflows from income-generating assets and inflows to non-income-generating assets.

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Thesis advisor

Jylhä, Petri

Keywords

mutual funds, mutual fund flows, reaching for income, monetary policy

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https://urn.fi/URN:NBN:fi:aalto-202501261755

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