Analyze the relationship between mutual fund flows and stock market returns in United States and Taiwan.
Chu, Nha Trang、陳美玲
E-mail: [email protected]
ABSTRACT
The main purpose of this study is to explore the relationship between mutual fund flows and stock market returns in United States and Taiwan. The empirical evidence from Granger causality test indicates that mutual fund flows lead stock market return in both countries but not true in vice versa. Therefore, investors can rely on the past performance of mutual fund flows to predict the behavior of stock returns in both countries. Furthermore, OLS regression leads to the conclusion that there existing positive long-term relations between TWMFF and TWSMR, between USMFF and USSMR and negative relations from USMFF to TWSMR, but it’s very small impact. We also obtain the results from VAR suggested that stock return can be predicted by lagged fund flows in US case. Moreover, a significant one month lagged is retrieved from USMFF. Within two month lagged, USSMR is influenced by USMFF while there having a two-way feedback between TWMFF and TWSMR. The response to shock of TWMFF is stronger and longer than USMFF, indicate that United States is a more efficient Market than Taiwan from the aspect of mutual fund market.
Keywords : mutual fund flows, Stock market return, Granger Causality, VAR model, impulse response function, OLS.
Table of Contents
中文摘要 ．．．．．．．．．．．．．．．．．．．．． iii Abstracts ．．．．．．．．．．．．．．．．．．．．．．
iv Acknowledgments ．．．．．．．．．．．．．．．．．． v List of Tables ．．．．．．．．．．．．．．．．．．．．
viii Lists of Figures a．．．．．．．．．．．．．．．．．．． ix Lists of Abbreviations．．．．．．．．．．．．．．．．
． x Chapter 1 Introduction ．．．．．．．．．．．．．．．． 1 1.1 Background and motivations ．．．．．．．．． 1 1.2 Objectives ．．．．．．．．．．．．．．．． 4 1.3 Chapter Outline ．．．．．．．．．．．．．． 5 Chapter 2 Literature review ．．．．．．．．．．．．．． 7 2.1 Background of Mutual fund market．．．．．．． 7 2.2 Relations between mutual fund flows and stock market returns ．． ．．．．．．．．．．．．． 8 2.3 Literature about Methodology ．．．．．．．．． 12 Chapter 3 Data and Methodology ．．．．．．．．．．．． 14 3.1 Data Descriptions
．．．．． ．．．．．．．． 14 3.2 Methodology ．．．．．．． ．．．．．．．． 15 Chapter 4 Empirical Results．．．
．．．．．．．．．．． 26 4.1 Descriptive statistics．．．．．．．．．．．．． 26 4.2 ARCH tests ．．．．．．．
．．．．．．．．． 29 4.3 Unit root test．．．．．．．．．．．．．．．． 30 4.4 Granger Causality test ．．．．．．．
．．．．． 32 4.5 Ordinary Least Squares test ．．．．．．．．．． 33 4.6 Vector Autoregressive (VAR) Model Test ．．．
． 36 Chapter 5 Conclusions and Suggestions ．．．．．．．．． 47 5.1 Conclusions ．．．．．．．．．．．．．．．． 47 5.2 Suggestions ．．．．．．．．．．．．．．．． 48 References ．．．．．．．．．．．．．．．．．．．．． 49 Table 3-1 The definition of variables and data sources ．．．． 15 Table 4-1 Descriptive statistics for mutual fund flows and stock market return in United States and Taiwan ．．． 28 Table 4-2 The results of ARCH test．．．．．．．．．．．． 30 Table 4-3 Unit root test on Level Data of Time Series．．．．． 31 Table 4-4 Granger Causality Test．．．．．．．．．．．．．
32 Table 4-5 The results of OLS Regression ．．．．．．．．． 34 Table 4-6 The Optimal Lag Terms of VAR model ．．．．
．． 37 Table 4-7 VAR Empirical results of United States ．．．．．． 38 Table 4-8 VAR Empirical results of Taiwan．．．．
．．．．． 40 Table 4-9 Impulse Response Function Analysis of United States 42 Table 4-10 Impulse response Function Analysis of Taiwan ．．． 45 Figure 1-1 Structure of study ．．．．．．．．．．．．． 6 Figure 4-1 Trend graph of level data in United States．．．． 27 Figure 4-2 Trend graph of level data in Taiwan ．．．．．． 27 Figure 4-3 Response to shock of USMFF ．．．．．．．． 43 Figure 4-4 Response to shock of USSMR ．．．．．．．． 43 Figure 4-5 Response to shock of TWMFF ．．．．．．．． 46 Figure 4-6 Response to shock of TWSMR ．．．．．．．． 46
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