Empirical Research On Equity Mutual Fund Flows And Market Returns

With the continuous development of China's stock market, there appears a rare "two-way prosperity" scene between the fund market (mainly the open-ended funds) and the stock market. And it is worth our attention that which market on earth affects the other. Has the performance of stock market been affected by changes of the Funds' Net Cash Flow, or the reverse? Or was there existing mutual causality between the Funds' Net Inflow Ratio and the Market Returns? Did the open-ended funds add fuel to the fire of the stock market, and play the role of an instability factor of the financial market?Based on the open-ended equity funds in China, mainly via empirical analysis, supplemented by some simple theoretical analysis, this paper explored the relationship between the Funds' Net Inflow Ratio and market returns. This article refers to the fund net cash flow by the terms Funds' Net Inflow Ratio. And it includes two levels------Single Fund's Net Inflow Ratio and Aggregate Equity Funds'Net Inflow Ratio. While the market returns in the 2 dimensions are different with fund returns and stock market returns. As for the aspects of empirical research in this article, we initiatively constructed Aggregate Equity Funds' Net Inflow Ratio from an overall perspective, making our research closer to the reality. If we got the Aggregate Equity Funds' Net Inflow Ratio series simply via adding all the single fund ratios, it may create biases as a result of the existence of transferring between equity funds. In addition, in the study of single funds, we adopted Dynamic Panel Data Model, to avoid the problem of possible Endophytism.From the view of fund flow, this study for the first time revealed differences of fund investors' investment behaviors in two dimensions:(1) The fund investors behaviors show different characteristics between the single fund level and the aggregate fund level; (2) The fund investors behaviors show different characteristics during different time frequency periods. It was also found to a certain extent that open-ended funds did add fire to the stock market fluctuation.Finally, according to conclusions, we made the following policy recommendations:(1) To guide investors with profits to be long-term investors; (2) To improve the fee structure of funds, to formulate appropriate dividend policy; (3) To strengthen supervision of the fund industry; (4) To focus on financial systems innovation and introduce risk management tools to improve entire investing environment, such as stock index futures and so on.