Gold, platinum, and mutual fund flows

Huang and Kilic (2019) demonstrate that gold to platinum price ratio (GP), which proxies for tail risk in the economy, is a priced risk factor in the cross-section of stock returns. We document that GP negatively affects the mutual fund flows of the active equity funds. In cross-sectional regressions, we find that funds with high betas with respect to the change in GP (${\beta }_{\Delta GP}$) have larger future fund flows, as such funds provide a hedge against economic distress. Further, ${\beta }_{\Delta GP}$ helps predict the future performance of the fund in the next few quarters. ${\beta }_{\Delta GP}$ also relates negatively to the downside risk of the fund, implying that funds could potentially reduce their left-tail risk by tilting towards securities with above average ${\beta }_{\Delta GP}$. We also examine the flows to active corporate bond funds and passive funds. While these effects of GP are largely observable for passive funds, they are not as strongly observable for corporate bond funds.