Mutual funds and market performance: New evidence from ASEAN markets

Abstract

The contemporaneous growth in ASEAN financial markets over the last two decades raises empirical questions regarding the role of institutional investors in financial market performance. Our study examines the dynamic relationship of aggregate mutual fund flows with market performance variables, i.e. stock market returns and volatility in ASEAN financial markets. Findings suggest that equity and balanced flows have a positive (negative) relationship with market returns (volatility), whereas bond and money market flows have a negative (positive) linkage with market returns (volatility). Furthermore, equity and balanced mutual funds contribute towards reducing market volatility. In addition, mutual funds respond concurrently to risk-related information as compared to returns-related information in the stock market. We also identify that risky securities have a stronger relationship with the market variables than less risky securities do. Moreover, investors direct flows away from equity-based funds to fixed income-type funds in times of high market risk.