Title: A Study of Mutual Fund Flow and Market Return Volatility
Reference Number: 1065
Publication Date: May 2002
Author(s):

Eric C. Chang
The University of Hong Kong

Ying Wang
The University of Hong Kong

Abstract:
In this study, we investigate the impact of institutional trading on the market by examining the daily relation between aggregate flow into U.S. equity funds and market volatility. We differentiate the impact of fund inflow and outflow, respectively, on the market volatility. Our empirical results show that there exists an asymmetric concurrent relationship between fund flow and market volatility: fund inflow is negatively correlated with market volatility while fund outflow is positively correlated with market volatility. We also discuss the potential explanations for our results and suggest that our results are consistent with information content differences of funds' buys and sells.

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Last modified: 07/15/2003