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Who Drives Whom? Mutual Funds VS Stock Market

Author

Listed:
  • Zahid Irshad Younas
  • Wasif Siddiqi

Abstract

In this study we want to investigate the implication of stock market performance on mutual funds and vice versa. Purpose of the study was also to observe whether variation in NAV of mutual funds “Causes” variation in indices and vice versa. In order to observe this Cause and variation relationship study used the daily data on NAV of five open end mutual funds and KSE 100 indices for the period 2006 to 2010. The results obtained at the end shows there is unidirectional causality, bidirectional causality and causality independent to direction. “Everything causes Everything” is the thought of one school, while other school of thought is contrary to this belief. A couple of years ago Karachi stock market was tumbling and few corrections caused variation in mutual funds NAV. Hence other motive of the study was to observe whether historical performance of stock market and mutual funds contains useful information to predict the current NAV and current stock market performance. The results of study revealed the fact though stock market and mutual funds both affect the performance of each other but there may be some other factors which are also responsible for the performance of stock market and mutual funds.

Suggested Citation

  • Zahid Irshad Younas & Wasif Siddiqi, 2011. "Who Drives Whom? Mutual Funds VS Stock Market," Journal of Global Economy, Research Centre for Social Sciences,Mumbai, India, vol. 7(4), pages 268-274, December.
  • Handle: RePEc:jge:journl:743
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    References listed on IDEAS

    as
    1. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
    2. Dynan, Karen E. & Elmendorf, Douglas W. & Sichel, Daniel E., 2006. "Can financial innovation help to explain the reduced volatility of economic activity?," Journal of Monetary Economics, Elsevier, vol. 53(1), pages 123-150, January.
    3. Jean Boivin & Marc P. Giannoni, 2006. "Has Monetary Policy Become More Effective?," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 445-462, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Stock Market; NAV; Granger Causality; Mutual Funds;

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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