Each week, capital flows into mutual funds are reported. Equity market analysts, investors, commentators and journalists parse the data to gain deeper insight into the market. But no one knows for certain what the data mean, and academic inquiry into the topic has been lacking.

Raw Fund Flows and Size of REIT Mutual Fund Market

In 2004, however, David Ling and Andy Naranjo of the University of Florida investigated the effects of weekly and monthly capital flows into and out of REIT mutual funds on REIT returns.

Their findings suggest "that REIT mutual fund flows are significantly and positively related to prior industry-level returns; i.e., we find evidence of return-chasing behavior on the part of dedicated REIT mutual fund investors,” Ling and Naranjo write. "However, prior fund flows do not significantly influence subsequent REIT returns.”

The message for REIT investors is: "Don’t spend time analyzing fund flows in the hopes of predicting returns, at least in the aggregate. Industry-level REIT returns are not predictable.”