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Stock returns and investment trust flows in the Japanese financial market: A system approach

  • Cha, Heung-Joo
  • Kim, Jaebeom

To study dynamic and causal relations between stock returns and investment trust flows in Japan, we employ a system method which utilizes information from the stock, bond, and money markets. The empirical evidence from SURECM, and Granger (1969) and Sims (1972) causality tests in the system method indicates that investment trust flows are weakly exogenous and stock returns cause net fund flows, implying that investors move their money to the securities that yield higher returns to rebalance their investment portfolios in the short-run. Thus, our findings do not support the popular notion of mutual fund flows as a driving force behind rallies in Japanese financial markets.

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Article provided by Elsevier in its journal Journal of Asian Economics.

Volume (Year): 21 (2010)
Issue (Month): 4 (August)
Pages: 327-332

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Handle: RePEc:eee:asieco:v:21:y:2010:i:4:p:327-332
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  1. Steven J. Brown & William N. Goetzmann & Takato Hiraki & Niroyoshi Shiraishi & Masahiro Watanabe, 2002. "Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows," Yale School of Management Working Papers ysm24, Yale School of Management.
  2. Eric M. Engen & Andreas Lehnert, 2000. "Mutual funds and the U.S. equity market," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Dec, pages 797-812.
  3. William N. Goetzmann & Massimo Massa, 1999. "Index Funds and Stock Market Growth," NBER Working Papers 7033, National Bureau of Economic Research, Inc.
  4. Grinblatt, Mark & Titman, Sheridan & Wermers, Russ, 1995. "Momentum Investment Strategies, Portfolio Performance, and Herding: A Study of Mutual Fund Behavior," American Economic Review, American Economic Association, vol. 85(5), pages 1088-1105, December.
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  6. Stephen J. Brown & William N. Goetzmann & Takato Hiraki & Toshiyuki Otsuki & Noriyoshi Shiraishi, 1998. "The Japanese Open-End Fund Puzzle," NBER Working Papers 6347, National Bureau of Economic Research, Inc.
  7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  8. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  9. Park, Joon Y, 1992. "Canonical Cointegrating Regressions," Econometrica, Econometric Society, vol. 60(1), pages 119-43, January.
  10. Cai, Jun & Chan, K C & Yamada, Takeshi, 1997. "The Performance of Japanese Mutual Funds," Review of Financial Studies, Society for Financial Studies, vol. 10(2), pages 237-73.
  11. Warther, Vincent A., 1995. "Aggregate mutual fund flows and security returns," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 209-235.
  12. Erik R. Sirri & Peter Tufano, 1998. "Costly Search and Mutual Fund Flows," Journal of Finance, American Finance Association, vol. 53(5), pages 1589-1622, October.
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