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For every buyer, there is a seller. Money can't 'flow' in and out of a stock, only the price changes. Is this applicable in the context of asset classes, for example, money market funds versus stocks? If a portfolio manager sells stocks and buys a money market fund, then wouldn't it mean that money 'flows out of stocks'? Or does the same logic apply, that is, since someone bought the stocks from the portfolio manager, there is technically the same amount of money in the stocks?

If this is true and money flow is impossible unless it is an IPO, then why is money flow cited and considered relevant, everywhere?

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    $\begingroup$ My understanding is that a well-run flow trading desk can provide information that can benefit traders. However, not everyone is able to take advantage of that information. $\endgroup$
    – John
    Commented Oct 6, 2012 at 5:24
  • $\begingroup$ It has to do with more buy volume than sell volume = positive inflow. outflow is the opposite . This could also include short sellers as part of the outflow and shorts covering as the inflow.If no net money enters or leaves a stock, the price will probably be unchanged. Redeeming stock for cash creates an outflow. $\endgroup$
    – Thomas Baert
    Commented Oct 4, 2015 at 0:08

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Correct. All outstanding issues are held. Money only flows into an asset class via the primary market (such as an IPO, secondary offering, etc.) not on the secondary markets which are publicly traded. What is actually changing is people's willingness to buy and sell securities at various prices. When market commentators talk about money flowing into or out of an asset class they are missing this point.

Money flow can be defined in many ways - changes in dealer inventories, changes in inventories of some group of investors (say, at the investment bank publishing the research), or as a technical indicator.

The best argument you can make in favor of money flow is that there is some information content based on who owns assets (i.e. dealers, commercial hedgers, informed speculators, retail money). Understanding how certain players or groups of players are positioned might also generate some useful information (for example, certain pension funds that target a strategic policy allocation might have to buy equities on the margin if their portfolio allocation is off target).

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  • $\begingroup$ How about a popular technical formula of uptick value vs down tick value (for example: online.barrons.com/mdc/public/page/…), supposedly calculating money flow...is that also just a marketing thing or is it actually capturing something? thank you $\endgroup$
    – ocq
    Commented Oct 6, 2012 at 15:53
  • $\begingroup$ that makes no sense. If institutions or individuals want to convert their stock into cash, prices will go down due to money held in stock flowing out. Why else did enron go to zero? $\endgroup$
    – Thomas Baert
    Commented Oct 4, 2015 at 0:03
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Adding onto Quant Guy, money can technically flow in and out with dividends, buybacks and secondary issues. In the case of a cash dividend, money flows out without any shares trading(depending on outstanding shares obviously). While secondary issues can basically be thought of as a followup IPO if you will. Buyback is a purchase of a company of its own shares on the marketplace which can be funded by cash or debt.

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