Equity Fund Flows and Stock Market Returns in the US Before and After the Global Financial Crisis: A VAR-GARCH-in-mean Analysis

17 Pages Posted: 6 Jul 2016

See all articles by Vassilios Babalos

Vassilios Babalos

Department of Accounting & Finance, Technological Educational Institute of Peloponnese; University of Piraeus - Department of Banking and Financial Management

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Nicola Spagnolo

Brunel University London - Economics and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 07, 2016

Abstract

The 2008-2009 global financial crisis has raised new questions about the relationship between equity fund flows and stock market returns. This paper analyses it using US monthly data over the period 2000:1-2015:08. A VAR-GARCH(1,1)-in-mean model with a BEKK representation is estimated, and a switch dummy for the global financial crisis is also included. We find causality-in-mean from stock market returns to equity fund flows (consistently with the feedback-trading hypothesis) only in the post-September 2008 period. There are also volatility spillovers from stock market returns to equity fund flows both before and after the crisis; however, this relationship is not stable, becoming weaker in the crisis period. As a robustness check we augment the model with a set of macroeconomic control variables. Their inclusion does not affect the main results.

Keywords: equity fund flows, stock market returns, VAR-GARCH-in-mean model, volatility

JEL Classification: G230, C320

Suggested Citation

Babalos, Vassilios and Caporale, Guglielmo Maria and Spagnolo, Nicola, Equity Fund Flows and Stock Market Returns in the US Before and After the Global Financial Crisis: A VAR-GARCH-in-mean Analysis (June 07, 2016). CESifo Working Paper Series No. 5932. Available at SSRN: https://ssrn.com/abstract=2805392

Vassilios Babalos

Department of Accounting & Finance, Technological Educational Institute of Peloponnese ( email )

Antikalamos
Kalamata, KALAMATA 24100
Greece

HOME PAGE: http://www.teikal.gr

University of Piraeus - Department of Banking and Financial Management ( email )

80 Karaoli & Dimitriou Str.
18534 Piraeus, 185 34 -GR
Greece

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

Kingston Lane
Marie Jahoda Building
Uxbridge, Middlesex UB8 3PH
United Kingdom
+44 1895 266713 (Phone)
+44 1895 269770 (Fax)

HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Nicola Spagnolo

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

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