Are Cash Holdings in Equity Mutual Funds Predictive?

Periodically, the financial media will report on the percentage of assets in equity mutual fund assets that are invested in cash. There are at least a couple of reasons why cash levels might be useful for assessing future market returns. These are: 1. dry powder hypothesis, 2. contrarian investor vi...

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Bibliographic Details
Published in:Journal of Financial Planning 2010-11, Vol.23 (11), p.36
Main Authors: Riepe, Mark W, Suarez, David
Format: Article
Language:English
Subjects:
Cash
Equity funds
Rates of return
Securities markets
Variables
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Summary:Periodically, the financial media will report on the percentage of assets in equity mutual fund assets that are invested in cash. There are at least a couple of reasons why cash levels might be useful for assessing future market returns. These are: 1. dry powder hypothesis, 2. contrarian investor view and 3. the evidence. Over the years, many variables have been considered to have some predictive power for the market. The authors added a few of these variables (S&P 500 dividend yield, 90-day Treasury bill yield, whether the Fed was in a tightening or loosening mode) to the default and term premium variables as well as the mutual fund cash variable and analyzed the results over the same 10 years. They used quarterly data instead of monthly data to try to better capture the leads and lags associated with the data.
ISSN:1040-3981