An empirical analysis of the dynamic relationship between mutual fund flow and market return volatility
AbstractWe study the dynamic relation between aggregate mutual fund flow and market-wide volatility. Using daily flow data and a VAR approach, we find that market volatility is negatively related to concurrent and lagged flow. A structural VAR impulse response analysis suggests that shock in flow has a negative impact on market volatility: An inflow (outflow) shock predicts a decline (an increase) in volatility. From the perspective of volatility-flow relation, we find evidence of volatility timing for recent period of 1998-2003. Finally, we document a differential impact of daily inflow versus outflow on intraday volatility. The relation between intraday volatility and inflow (outflow) becomes weaker (stronger) from morning to afternoon.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Banking & Finance.
Volume (Year): 32 (2008)
Issue (Month): 10 (October)
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Web page: http://www.elsevier.com/locate/jbf
Mutual fund flow Market volatility Volatility timing Fund inflow and fund outflow;
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