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

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  • Watson, John
  • Wickramanayake, J.
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    Abstract

    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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

    Volume (Year): 22 (2012)
    Issue (Month): 3 ()
    Pages: 451-472

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    Handle: RePEc:eee:intfin:v:22:y:2012:i:3:p:451-472

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    Web page: http://www.elsevier.com/locate/intfin

    Related research

    Keywords: Managed Funds; Performance; Fund flows; Granger causality;

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    Cited by:
    1. Alexakis, Christos & Dasilas, Apostolos & Grose, Chris, 2013. "Asymmetric dynamic relations between stock prices and mutual fund units in Japan. An application of hidden cointegration technique," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 1-8.

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