An Empirical Study Between Open-end Fund Flows And Stock Market Returns And Returns Volatility

In china, although open-end fund started in 2001, after nearly eight years of development, Open-end fund has made tremendous development and its influence on the stock market is gradually increased. The open-end fund now plays an increasing role in stock market, and its impact on the daily lives of ordinary people is also increasing. But domestic research of the open-end fund has focus on the influence factor of the redeem of open-end fund or relation between open-end fund 's shareholding and stock prices volatility, only very few people study the relation between open-end fund flows and stock market returns and stock market returns volatility from fund investor's point of view. In order to look more closely at this relation, this article makes an empirical research about it.First,I study the relation between fund flows and stock market returns. I find evidence of a negative relation between net flows of cash into index fund and concurrent stock market returns and evidence of a positive relation between net flows of cash into index fund and lag-1 returns,indicating index fund investors are not only positive feedback but also disposition effect investors. I also find that net flows of cash into growth fund, value fund and equity fund are positive correlated with lag-1 returns,but uncorrelated with concurrent returns, indicating these types of investors are only positive feedback investors. Further, I find no evidence of a return reversal which would support the price pressure hypothesis.Second, I study the relation between fund flows and stock market returns volatility. I find that net flows of cash into growth fund, value fund and equity fund are negative correlated with lag-1 returns volatility. I also study wether investors has the same sensitivity to up volatility and down volatility. The empirical conclusion shows that growth fund and equity fund investors are more sensitive to up volatility, while value fund and index fund investors are more sensitive to down volatility. I further find that net flows of cash into fund have no effect on returns volatility.Lastly, based on the empirical outputs, this article puts forward several policies and suggestions.