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Asymmetric dynamic relations between stock prices and mutual fund units in Japan. An application of hidden cointegration technique

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  • Alexakis, Christos
  • Dasilas, Apostolos
  • Grose, Chris

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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Bibliographic Info

Article provided by Elsevier in its journal International Review of Financial Analysis.

Volume (Year): 28 (2013)
Issue (Month): C ()
Pages: 1-8

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Handle: RePEc:eee:finana:v:28:y:2013:i:c:p:1-8

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Web page: http://www.elsevier.com/locate/inca/620166

Related research

Keywords: Mutual fund flows; Stock returns; Hidden cointegration;

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