Asymmetric dynamic relations between stock prices and mutual fund units in Japan. An application of hidden cointegration technique |
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| Institution: | 1. Department of Economics, University of Piraeus, 80 Karaoli and Dimitriou, 18534 Piraeus, Greece;2. School of Economics and Business Administration, International Hellenic University, 14th klm Thessaloniki-Moudania, 57101 Thessaloniki, Greece;1. Hanqing Advanced Institute of Economics and Finance, Renmin University of China, China;2. School of Finance, Shanghai University of Finance and Economics, China;1. Newcastle Business School (NBS), Northumbria University, Newcastle-upon-Tyne, United Kingdom;2. University of ?ód?, Poland;3. Southern Illinois University Edwardsville, Edwardsville, IL, USA;4. Jiangxi University of Economics and Finance, China;5. The William Davidson Institute (WDI), Ann Arbor, MI, USA |
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| Abstract: | This paper examines “causality” effects between mutual fund flows and stock index prices in Japan. In particular, both the short and long run dynamics between stock prices and fund units are investigated. The novelty of our paper is the use of the hidden cointegration technique which attempts to capture heterogeneous fund flow reactions when stock index prices move up or down. Moreover, we employ the crouching error correction model (CECM) to assess the relationship between stock market movements and fund flow changes. The results show that stock prices and mutual fund units are cointegrated. In the case of positive movements there is a bi-directional effect interconnecting them, whereas for negative movements, causality runs only from fund flows to stock prices. The dynamics structure provides evidence that market microstructure, taxation and investors' sentiment affect stock price and unit formation. |
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