The Impact of Equity Mutual Fund Flows on the Stock Market - Evidence from International Data

Abstract

The impact of equity mutual fund flows on the stock market has been studied extensively, but always on individual countries, and the literature remains inconclusive. We therefore utilise a decade's worth of data from 13 countries to investigate the impact of equity mutual fund flows on stock market returns and vice versa. Through panel data analysis, we find no evidence of a link between equity mutual fund flows and stock market returns that is common across countries. This result holds both in periods of market tranquility and market turmoil. When analysing each country separately, we fail to uncover a significant relationship in most countries. Furthermore, the statistically significant relationships we find differ across countries both in sign and in direction of causality. This suggests that the relationship between equity mutual fund flows and stock movements is much weaker than one would infer from past studies.