An empirical analysis of the dynamic relationship between mutual fund flow and market return volatility
We study the dynamic relation between aggregate mutual fund flow and market-wide volatility. Using daily flow data and a VAR approach, we find that market volatility is negatively related to concurrent and lagged flow. A structural VAR impulse response analysis suggests that shock in flow has a negative impact on market volatility: An inflow (outflow) shock predicts a decline (an increase) in volatility. From the perspective of volatility-flow relation, we find evidence of volatility timing for recent period of 1998-2003. Finally, we document a differential impact of daily inflow versus outflow on intraday volatility. The relation between intraday volatility and inflow (outflow) becomes weaker (stronger) from morning to afternoon.
Year of publication: |
2008
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Authors: | Cao, Charles ; Chang, Eric C. ; Wang, Ying |
Published in: |
Journal of Banking & Finance. - Elsevier, ISSN 0378-4266. - Vol. 32.2008, 10, p. 2111-2123
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Publisher: |
Elsevier |
Keywords: | Mutual fund flow Market volatility Volatility timing Fund inflow and fund outflow |
Saved in:
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