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Equity fund flows, market returns, and market risk: evidence from China

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Listed:
  • Fiza Qureshi

    (University of Sindh)

  • Ali M. Kutan

    (Southern Illinois University Edwardsville)

  • Habib Hussain Khan

    (International Islamic University)

  • Saba Qureshi

    (University of Sindh)

Abstract

We examine contemporaneous and dynamic relationship among equity fund flows, market returns, and market risk in China by applying structural vector autoregression (SVAR) and reduced-form VAR models using monthly and quarterly data over the period of 2005–2016. Results from the reduced-form VAR suggest that equity funds can play important role in reducing market risk by actively participating in the equity market. Moreover, adverse market conditions can cause equity funds to refrain from active participation in trading activities. The results from the structural VAR show that market risk and stock returns are contemporaneously related to fund flows, suggesting that concurrent relationships are important in studying the linkages between aggregate equity fund flows and stock market variables. We also discuss the policy implications of findings in the context of recent downturn in the Chinese stock market.

Suggested Citation

  • Fiza Qureshi & Ali M. Kutan & Habib Hussain Khan & Saba Qureshi, 2019. "Equity fund flows, market returns, and market risk: evidence from China," Risk Management, Palgrave Macmillan, vol. 21(1), pages 48-71, March.
    • Handle: RePEc:pal:risman:v:21:y:2019:i:1:d:10.1057_s41283-018-0042-3
    DOI: 10.1057/s41283-018-0042-3
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