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- Title
EQUITY MUTUAL FUNDS FLOW AND STOCK PRICE CHANGES.
- Authors
Bhargava, Vivek; Konku, Daniel K.
- Abstract
The popularity of mutual funds as an investment tool has an important implication for the financial markets. Several recent studies have suggested that the behavior of mutual fund shareholders could, in theory, influence equity market prices This paper investigates the impact of equity funds flows on the volatility of market returns. Specifically, we investigate whether changes in equity funds flows cause price changes and the vice versa. The results obtained using Vector Autoregression (VAR) tests with the S&P 500 shows a strong evidence of price pressure hypothesis and a weak evidence of feedback hypothesis for the period 1984 to 2003. We find that price change increases two months after an increase in net flow and drops three months after an increase in net flow, whereas, net flow increases after an increase in price change. We also find bi-directional causality between equity prices and total net assets of a mutual funds. Another finding of this paper is that the mutual funds and equity market price relationship for 1990s onwards are totally different than the 1980s.
- Publication
International Journal of Finance, 2004, Vol 16, Issue 3, p3140
- ISSN
1041-2743
- Publication type
Academic Journal