TY - JOUR
T1 - An empirical analysis of the dynamic relationship between mutual fund flow and market return volatility
AU - Cao, Charles
AU - Chang, Eric C.
AU - Wang, Ying
N1 - Funding Information:
This research is supported by the Research Grant Council of the Hong Kong Government (Earmarked Grant: HKU7141/02H). Special thanks go to Giorgio Szego and two anonymous referees for insights that greatly improved the quality of our paper. We thank Herman Bierens, Tim Simin, Michelle Lowry, Laura Field, Bill Kracaw and seminar participants at Pennsylvania State University and Financial Management Association Meetings for helpful comments.
PY - 2008/10
Y1 - 2008/10
N2 - 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.
AB - 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.
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U2 - 10.1016/j.jbankfin.2007.12.035
DO - 10.1016/j.jbankfin.2007.12.035
M3 - Article
AN - SCOPUS:51349166324
SN - 0378-4266
VL - 32
SP - 2111
EP - 2123
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
IS - 10
ER -