Mutual Funds and Stock and Bond Market Stability

The unprecedented growth of mutual funds has raised questions about the impact of mutual fund flows on stock and bond prices. Many believe that the equity bull market of the 1990s is attributable to the huge flows of funds into equity mutual funds during this period and that a withdrawal of those funds could send stock prices plummeting. This article investigates the relationship between aggregate monthly mutual fund flows (sales, redemptions, and net sales) and stock and bond monthly returns during a 30-year period beginning January 1961 utilizing Granger causality and instrumental variables analysis. With one exception, flows into stock and bond funds have not affected either stock and bond returns. The exception is 1971–1981, when widespread redemptions from equity mutual funds significantly depressed stock returns. In contrast, the magnitude of flows into both stock and bond funds are affected significantly by stock and bond returns.     

Relations between mutual fund flows and stock market returns in Korea

This paper analyses relations between stock market returns and mutual fund flows in Korea. A positive relationship exists between stock market returns and mutual fund flows, measured as stock purchases and sales and net trading volumes. In aggregate, mutual funds are negative feedback traders. Standard causality tests suggest that it is predominantly returns that drive flows, while stock sales may contain information about returns. After controlling for declining markets, the results suggest Korean equity fund managers tend to increase stock purchases in times of rising market volatility, possibly disregarding fundamental information, and to sell in times of wide dispersion in investor beliefs.     

The dynamics between stock returns and mutual fund flows: empirical evidence from the Greek market

This paper examines the interaction between mutual fund flows and stock returns in Greece. Specifically, we investigate the possibility of a causality mechanism through which mutual funds flows may affect stock returns and vice versa. The statistical evidence derived from the error correction model indicates that there is a bidirectional causality between mutual fund flows and stock returns. Cointegration results show that mutual funds flows cause stock returns to rise or fall. This may be explained by the fact that, in Greece, equity mutual funds are obliged by law to invest a certain percentage of their cash in stocks. Thus, inflows and outflows of cash in equity funds seem to cause higher and lower stock returns in Greek stock market.     

Herding in the German Mutual Fund Industry

This paper analyses the trading activity of German mutual funds in the 1998–2002 period to investigate whether German mutual fund managers are engaged in herding behaviour. Another objective of the study is to determine the impact of this herd‐like trading on stock prices. Our results provide evidence of herding and positive feedback trading by German mutual fund managers. We show that a significant portion of herding detected in the German market is associated with spurious herding as a consequence of changes in benchmark index composition. Investigating the impact of mutual fund herding on stock prices, we find that herding seems to neither destabilise nor stabilise stock prices.     

Investor Sentiment and Stock Returns: Evidence from Turkey

This paper investigates the relation between investor sentiment and stock returns on the Istanbul Stock Exchange, employing vector autoregressive (VAR) analysis and Granger causality tests. The sample period extends from July 1997 to June 2005. In the VAR models, stock portfolio returns and investor sentiment proxies are used as endogenous variables. Two dummy variables accounting for natural and economic crises are used as exogenous variables. The analysis results suggest that, excepting shares of equity issues in aggregate issues, stock portfolio returns seem to affect all investor sentiment proxies, namely closed-end fund discount, mutual fund flows, odd-lot sales-to-purchases ratio, and repo holdings of mutual funds. Investor sentiment does not appear to forecast future stock returns; only the turnover ratio of the stock market seems to have forecasting potential.     

Selling winners, holding losers: Effect on fund flows and survival of disposition-prone mutual funds

Recent studies suggest that presence of a disposition effect in a large subset of investors can create stock mispricings, which has serious implications for market efficiency. We examine whether US equity mutual funds are disposition-prone, how that effect influences performance, investor flows and fund survival, and whether the disposition orientation of mutual funds affects stock prices in a sustained manner.We find that about 30% of all funds exhibit some degree of disposition behavior and that such funds underperform funds that are not disposition-prone by 4-6% per year. Moreover, after controlling for performance, tax overhang and other factors that potentially affect flows, disposition-prone funds attract significantly smaller flows than other funds. The results suggest that mutual fund investors are smart enough to minimize investment in disposition-prone funds. Consequently, disposition-prone funds have significantly higher rates of failure than other funds, thereby reducing the impact of such trading behavior on security prices.     

Mutual fund flows,expected returns,and the real economy

This paper investigates the relation between mutual fund flows and the real economy. The findings of this paper support the theory that the positive co-movement of flows into equity funds and stock market returns is explained by a common response to macroeconomic news. Variables that predict the real economy as well as the equity premium – in particular dividend-price ratio, default spread, relative T-Bill rate and consumption-wealth ratio – are related to fund flows and can account for the correlation of flows and market returns. Furthermore, consistent with the information-response hypothesis, mutual fund flows are forward-looking and predict real economic activity.     

Factors affecting the yields on noninvestment grade bond indices: a cointegration analysis

This study examines the long- and short-run dynamics of the yields on noninvestment grade indices. Utilizing cointegration techniques, the traditional yield spread model is found to be inadequate. A revised model finds a long-run relationship between noninvestment grade yields, Treasury securities, and default rates. Error correction models are formulated to model the short-run dynamics of different segments of the market. These models include a long-run equilibrium (between yields, default rates, and Treasuries), mutual fund flows, minor bond ratings, debt subordination measures, a stock index, and a January effect. Segmentation in the noninvestment grade market is also demonstrated.     

The dynamics of economic growth,oil prices,stock market depth,and other macroeconomic variables: Evidence from the G-20 countries

This paper examines the linkages between economic growth, oil prices, depth in the stock market, and three other key macroeconomic indicators: real effective exchange rate, inflation rate, and real rate of interest. We employ a panel vector autoregressive model to test Granger causality for the G-20 countries over the period 1961–2012. A novel approach to this study is that we clearly demarcate the long-run and short-run relations between the economic variables. The results show a robust long-run economic relationship between economic growth, oil prices, stock market depth, real effective exchange rate, inflation rate, and real rate of interest. In the long run, real economic growth is found to respond to any deviation in the long-run equilibrium relationship that is found to exist between the different measures of stock market depth, oil prices, and the other macroeconomic variables. In the short run we find a complex network of causal relationships between the variables. While the empirical evidence of short-run causality is mixed, there is clear evidence that real economic growth responds to various measures of stock market depth, allowing for real oil price movements and changes in the real effective exchange rate, inflation rate, and real rate of interest.     

中国公募基金挖掘了股票市场异象吗？

公募基金是我国重要的机构投资者之一,分析其投资逻辑对理解机构投资者行为和公募基金的选择至关重要。基于2005年至2019年主动管理偏股型开放式基金数据,本文检验了公募基金对A股市场87个异象因子的挖掘。为解决因子维度过大问题,本文采用非参方法从87个异象因子中提取有效信息的综合指标A-Score,并根据基金持仓构建基金的异象投资指标AIM(Anomalies Investing Measure)。结果显示:(1)中国公募基金挖掘了市场异象;(2)利用AIM可以选择表现更好的基金,并能获得0.45%的月度多空组合收益;(3)基金经理的选股能力、风格选择能力和风控能力是其挖掘异象收益的主要来源;(4)异象挖掘可以为基金带来长期资金流,同时也缓和了市场的错误定价。     

Closed-end country funds and U.S. market sentiment

Closed-end country funds can trade at large premiums and discountsfrom their foreign asset values (NAVs). Investigating this anomaly,we find that individual fund premiums move together, primarilybecause of the comovement of their stock prices with the U.S.market. Moreover, an index of country fund premiums differentiatessize-ranked U.S. portfolio returns and forecasts country fundstock returns. These findings suggest that international equityprices are affected by local risk. In particular, we show thatcountry fund premium movements reflect a U.S.-specific risk,which may be interpreted as U.S. market sentiment.     

The impact of the Arab Spring and the Ebola outbreak on African equity mutual fund investor decisions

Financial development and stock markets have been widely considered to be key factors in economic growth. Among institutional investors, mutual funds play a key role in providing financial resources to stock markets, particularly in developing countries. Different from other investments, mutual fund flows could be affected by retail investors’ behavior and their overreaction to specific events. We considered 78 equity mutual funds that are geographically specialized in African countries and observed monthly flows and performance for the period of 2006–2015. We find that two major events, Ebola and the Arab Spring, significantly affected the fund flows, controlling for fund performance, expenses and market returns. Retail investors over-reacted to these major events, withdrawing their savings from the African mutual funds. This result is particularly strong when connected to the media coverage of these events: the higher the number of articles about Arab Spring and Ebola, the higher the withdrawals. These irrational investors’ behavior damaged the funds’ managers market timing ability, and reduced the equity capital injection into African stock markets. Our results have several implications for both holders of frontier market mutual funds and the overall asset management industry.     

High-frequency information content in end-user foreign exchange order flows

This article considers the impact of foreign exchange (FX) order flows on contemporaneous and future stock market returns using a new database of customer order flows in the euro-dollar exchange rate market as seen by a leading European bank. We do not find clear contemporaneous relationships between FX order flows and stock market changes at high frequencies, but FX flows do appear to have significant power to forecast stock index returns over 1–30 min horizons, after controlling for lagged exchange rate and stock market returns. The effects of order flows from financial customers on future stock market changes are negative, while the effects of corporate orders are positive. The latter results are consistent with the premise that corporate order flows contain dispersed, passively acquired information about fundamentals. Thus, purchases of the dollar by corporate customers represent good news about the state of the US economy. Importantly, though, there also appears to be extra information in corporate flows which is directly relevant to equity prices over and above the impact derived from stock prices reacting to (predicted) exchange rate changes. Our findings suggest that financial customer flows only affect stock prices through their impact on the value of the dollar.     

The relationship between aggregate managed fund flows and share market returns in Australia

This paper presents the relation between aggregate equity managed fund flows and excess share market returns in Australia and evaluates the issue of causality therein. Using a large data set of 3613 managed funds for the period January 1990 to September 2009, the paper addresses two important questions yet to be addressed within the Australian market: First, for research question one; it aims to determine whether a positive feedback process exists between aggregate equity managed fund flows and excess share market returns. Second, for research question two; it examines the relation between unexpected aggregate equity managed fund flows and excess share market returns. The empirical findings contribute to the literature by confirming, in Australia, aggregate equity managed fund flows do not Granger-cause excess share market returns; however, compelling evidence reveals that share market returns do in fact Granger-cause managed fund flows. These findings support those of Edwards and Zhang (1998), who find similar evidence for the United States over the sample period 1961–1996. In addition, aggregate equity managed fund flows are found to be positively related to excess share market returns, indicating herding behavior.     

基金经理更换、股票联动与股票价格

基金经理更换打破了基金共同持股投资组合中股票的关联性,降低了股票收益率相关性,进而影响了股票价格。本文基于基金共同持股和基金经理更换构建了对冲投资组合,获得0.1%的日超额收益率。基金投资组合中股票收益率相关性能够解释这种超额收益率,本文发现基金更换经理后,新基金经理重建投资组合,打破了原投资组合中股票间的关联,股票收益率相关性减弱,基金共同持股程度高的股票价格受到了更大影响。基金的被动流动性冲击不能解释本文的发现。本文的研究表明基金经理变更等基金管理行为通过股票收益率相关性对股票价格产生了重要影响。     

MARKET TIMING AND MUTUAL FUND PORTFOLIO COMPOSITION

This study uses a methodology that is independent of beta estimates to provide empirical evidence on the success of market timing by mutual fund managers. A fund's success at market timing is evaluated by determining if the percentage of the portfolio invested in stocks increases prior to an upturn in the general level of stock market prices and declines prior to a downturn in the level of stock prices. No evidence is found that managers possess, as a group, any market timing ability.     

基于波动效应与价格发现的期指仿真交易研究

沪深300股指期货仿真交易的推出,对我国现货市场的影响如何以及这种影响是否有利于现货效率的改进。首次采用修正的GARCH模型和向量误差修正模型（VEC）将股指期货推出后现货市场波动性的变化和股指期货与现货市场的价格发现功能结合起来进行对比研究。结果表明,期指仿真交易的推出对于现货市场效率的改进确实存在正面的影响。其引入在短期内加大了现货市场的波动,但这一波动正是市场信息流动加速的反映,因而提高了市场信息的传递效率。同时期货价格领先于现货价格,存在由期货市场到现货市场长期的单向因果关系,说明期货价格具有引导现货价格向均衡方向调整的功能,从而在经验上支持了股指期货市场的开放政策。     

Impact of speculation and economic uncertainty on commodity markets

We examine the interactions between commodity futures returns and five driving factors (financial speculation, exchange rate, stock market dynamics, implied volatility for the US equity market, and economic policy uncertainty). Nonlinear causality tests are implemented after controlling for cointegration and conditional heteroscedasticity in the data over the period May 1990 – April 2014. Our results show strong evidence of unidirectional linear causality from commodity returns to excess speculation for the majority of the considered commodities, in particular for agriculture commodities. This evidence casts doubt on the claim that speculation is driving food prices. We also find unidirectional linear causality from energy futures markets to exchange rates and strong evidence of nonlinear causal dependence between commodity futures returns, on the one hand, and stock market returns and implied volatility, on the other hand. Overall, the new evidence found in this paper can be utilized for policy and investment decision-making.     

Asset Allocation and Selectivity of Asian Mutual Funds During Financial Crisis

This paper evaluates the ability of US-based Asian mutual fund managers in coping with the 1997 Asian financial crisis. We find that the actively managed mutual funds under-perform with respect to the market portfolio by 1.71% in average monthly return. Such poor performance is caused by fund managers' relative weakness in country selection as well as in stock picking. Fund managers are also found to be more skillful in picking the correct market when the market is going up than going down. Our results are consistent with the literature that asset allocation in Asian mutual funds is a dominating factor relative to selectivity in explaining fund returns during the financial crisis. In addition, there exists a negative relation between asset allocation ability and selectivity of fund managers.