Economics at your fingertips  

Stock Returns and Mutual Fund Flows in the Korean Financial Market: A System Approach

Jaebeom Kim and Jung-Min Kim ()
Additional contact information
Jung-Min Kim: University of Seoul

No 2016-3, Working Papers from Economic Research Institute, Bank of Korea

Abstract: This paper investigates dynamic and causal relations between stock returns and mutual fund flows in Korea using a system method which utilizes information from the stock, bond, and money markets. For this purpose, we employ DSUR proposed by Mark, Ogaki, and Sul (2005), SURECM, and two causality tests by Granger (1969) and Sims (1972) in a system method to account for cross equation correlations among markets which have a close relationship with one another. Furthermore, we make use of information in the variance-covariance matrix of residual to improve the efficiency of the statistical estimates. The empirical evidence from the system method indicates that fund flows do not respond to eliminate the deviation from long-run equilibrium, and stock prices cause net fund flows in the Korean market, 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 that considers mutual fund flows as a driving force behind rallies in Korean financial markets.

Keywords: Stock returns; Mutual fund flows; Causality; Co-integration; DSUR; SURECM (search for similar items in EconPapers)
JEL-codes: G11 C32 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2016-03-23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) Working Paper, 2016 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Working Papers from Economic Research Institute, Bank of Korea Contact information at EDIRC.
Bibliographic data for series maintained by Economic Research Institute ().

Page updated 2020-03-29
Handle: RePEc:bok:wpaper:1603