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Feedbacks between mutual fund flows and security returns: evidence from the Greek capital market

Guglielmo Maria Caporale, Nikolaos Philippas () and Nikitas Pittis ()

Applied Financial Economics, 2004, vol. 14, issue 14, 981-989

Abstract: This paper examines the dynamic interactions between mutual fund flows and security returns in an emerging capital market, namely the Greek one. It adopts a testing strategy not requiring pre-testing (which might generate severe biases) but simply augmenting the system (Toda and Yamamoto, 1995, Journal of Econometrics, 66, 225-50). The resulting statistics follow standard distributions, and valid inference can be drawn. Further, possible feedbacks from international capital markets are taken into account by including in the system the Dow Jones index. By combining causality tests and generalized impulse response analysis (as in Pesaran and Shin, 1998, Economic Letters, 58, 17-29), it is found that momentum trading is the most plausible explanation for dynamic feedbacks, and that temporary price pressures might also be a relevant factor, whilst information revelation does not appear to play a role.

Date: 2004
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DOI: 10.1080/0960310042000263941

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